| Capital Position
Citigroup continued to improve its capital strength, with Tier 1 Capital ratio and Tier 1 Common ratio improving to 13.3% and 11.3% from 12.9% and 10.7%, respectively. Book value per share moved up to $5.85 from $5.61 in the prior quarter and $5.28 in the year-ago quarter. Tangible book value per share increased to $4.69 from $4.45 in the prior quarter and $4.09 in the year-ago quarter.
At the end of 1Q11, Citigroup’s end of period assets were $1.95 trillion, down 3% year over year, while deposits were $866 billion, up 5% year over year, driven by a 28% increase in non-interest bearing deposits.
Citicorp’s end of period assets were $1.3 trillion, up 8% from the prior-year period. End of period loans grew 10% year over year to $418 billion, with 6% growth in consumer loans and 16% growth in corporate loans.
Citi Holdings assets declined 33% from 1Q10 to $337 billion at the end of 1Q11. The decline reflected $106 billion in asset sales and business dispositions and $49 billion in net run-off and amortization. Citi Holdings assets comprised approximately 17% of total Citigroup assets at the end of 1Q11.
Outlook
Citigroup’s management remains confident that the company is on track to operate in the 8% to 9% Tier 1 Common range under Basel III in 2012. Assuming the company’s clarity on capital rules, it is expected to be in a position to begin returning capital to shareholders next year.
According to one firm (Sterne, Agee & Leach) Citigroup is unlikely to return any excess capital to shareholders prior to 2012, given the sluggish economy and required clarity on the new regulatory capital standards. The firm notes that management’s capital plan remains purposely vague, suggesting only that the Board plans to begin returning capital to shareholders in 2012. The initial dividend hike will likely be modest in order to comply with the Basel III in 2012 and continue demonstrating capital formation.
Stake and Warrants Sale by Treasury
On January 24, 2011, the U.S. Department of the Treasury announced that it had commenced a secondary public offering of 255,033,142 warrants to purchase the common stock of Citigroup Inc. (A Warrants) and a secondary public offering of 210,084,034 warrants to purchase the common stock of the company (B Warrants). The proceeds of this sale will provide an additional return to the American taxpayer from Treasury’s investment in the company beyond the dividend payments it received on the related preferred stock and the profit received from the sale of shares of common stock and trust preferred securities of the Company.
For “A" warrants, the minimum bid price is $0.60 per warrant and for “B" warrants the minimum bid price is $0.15 per warrant. The buyers of the warrants would have the right to purchase an equal number of Citigroup shares at a fixed price – $10.61 for the A warrants and $17.85 for the B warrants, with an expiry date of December 31, 2018, and October 28, 2018, respectively.
On December 10, 2010, the US Treasury announced that it received $10.5 billion in proceeds from the sale of its final 2.4 billion shares of Citigroup common stock, locking in a profit of at least $12 billion on its overall investment in Citigroup.
Student Loan Corp. Sale
On January 3, 2011, Citigroup announced that on December 31, 2010, it had completed transactions with Discover Financial Services (“Discover”) and SLM Corporation (“Sallie Mae”) that resulted in the divestiture of its student loan business, The Student Loan Corporation (“SLC”).
The sales reduced non-core assets in Citi Holdings by approximately $31 billion. As part of the transactions, Citibank, N.A. purchased approximately $8.7 billion of assets from SLC and would explore the opportunities to reduce these assets over time.
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