Citi's Pandit wants to reach 9% Tier 1 ratio under Basel 3 in 2012
Citigroup (C) CEO Vikram Pandit said the appropriate Tier 1 Common Ratio for banks under the proposed Basel 3 regulations should be between 8% and 9%, and that his bank should exceed that 2012. Speaking in the conference call following the third quarter earnings report for Citi, Pandit said share holders can anticipate a capital return in 2012. Citi reported $2.15 billion in net earnings for the third quarter. The amount of capital held by banks is a protection against unexpected losses. This capital ratio to the rest of its holdings is an important measure regulators view of a bank's financial strength. A German newspaper reported in September that global banks will be required to hold Tier 1 capital of 9%, including a 3% conservation buffer, according to a Basel 3 draft. A week later, the Basel Committee on Banking Supervision announced the latest capital requirements in September for banks to hold a capital conservation buffer of 2.5% to withstand future stress. It brought the total common equity requirements to 7%. But as the Basel Committee continues to work on finalizing these requirements, Pandit said Citigroup will exceed the 8% to 9% Tier 1 level in 2012. "The right level is at a Tier 1 of 8 to 9 %, and we expect to exceed those levels in 2012," John Gerspach, the Citigroup chief financial officer, said. "We're looking at what we know right now. Taking a look at our business model going forward, 7% is the minimum. You want to run somewhere above that. Right now our guesstimate is 8% to 9%, and 2011 to 2012 is the right number to look at." Gerspach added: "We have not put a specific timeframe around that. It's in 2012. It's not a hard line Dec. 31, 2011." In the third quarter, Citi maintained a Tier 1 Common Ratio of 10.3%, equaling $103.7 billion. Cutting down roughly two percentage points in two years will be helped by reducing billions of dollars invested in a Morgan Stanley-Smith Barney joint venture. It's expected that Citigroup will begin selling holdings there in 2012. "10.3% is relevant today and 8% to 9% will be relevant in 2012," Pandit said. "We have a lot of plans in place." Write to Jon Prior. The author holds no relevant investments.