Selling a unit may improve Citigroup's stress test score
May 1st 2009 7:00AM
Updated Dec 3rd 2009 11:47AM
Citigroup (C) may have just improved its outlook among bank "stress test" examiners. It has sold its Japanese units for $5.9 billion.
According to Reuters, "Sumitomo Mitsui Financial Group, Japan's third-largest bank, will buy Citigroup's Japanese brokerage and key investment banking units for $5.9 billion in a deal likely to reshape Tokyo finance and create a banking powerhouse."
Banks are apparently still wrestling with the government over the results of the stress tests, which will indicate how much capital the firms will need to raise.
Any bank that has to bring in significant new capital will probably have to turn to the government eventually. That will increase the Administration's and Fed's control over the banks and dilute current shareholders. Banks are also concerned that bad test results will hurt their relationships with customers and investors holding their stocks.
Citi's $5.9 billion deal may not eliminate its need to raise money but it will almost certainly bring up its stress test scores. This raises the possibility that other banks that have not done well in the government's eyes may also sell business units to keep from raising capital.
It may be a good year for financial M&A.
Douglas A. McIntyre is an editor at 24/7 Wall St.