Citi's Corbat builds bridges with regulators

Sun Jan 6, 2013 1:36pm EST

A Citi sign is seen at the Citigroup stall on the floor of the New York Stock Exchange, October 16, 2012. REUTERS/Brendan McDermid

A Citi sign is seen at the Citigroup stall on the floor of the New York Stock Exchange, October 16, 2012.

Credit: Reuters/Brendan McDermid

(Reuters) - Citigroup Inc's Michael Corbat has been meeting with bank regulators in his first months as CEO, as he looks to bolster relationships and finalize the bank's plan to return capital to shareholders, sources familiar with the matter said.

Corbat also expects to name his team of top managers within the next week or so, one of the sources said on Sunday.

Corbat is expected to play it safe when Citigroup asks the U.S. Federal Reserve for permission for moves such as buying back shares or increasing dividends, analysts and investors said. His predecessor, Vikram Pandit, lost his job in October in part because the bank's request for returning capital was denied in March.

The bank, which is due to submit its plan to the Fed on Monday, has not yet done so, the source said.

The third-largest U.S. bank will only seek approval to buy back shares and not raise dividends, the Wall Street Journal reported on Friday. Last year, the bank wanted permission to return more than $8 billion to shareholders over two years, the paper said.

Some Citigroup investors and analysts said they expect the bank to buy back $1 billion to $3 billion of common stock, even though it could probably afford to do more.

Citigroup is expected to earn around $14 billion in 2013, and it could afford to spend as much as $6 billion of shares on stock and still rebuild capital, even under difficult economic scenarios, analysts said. The company's outstanding stock has a market value of about $125 billion.

"The first step will be bite-sized. It will be a start," said David Hendler, senior analyst at independent research firm CreditSights.

Citigroup is one of 19 banks and other large institutions with more than $50 billion in assets that have to submit capital plans to regulators that will test them for resilience under adverse scenarios, a practice that regulators started at the height of the financial crisis.

The Fed has added a new dynamic to the test this year: banks will get a second chance to submit a plan if the first is rejected, but the amount of its requests to return capital will be publicly disclosed.

Bankers say that Fed officials are more open to talking with them this year about how to submit their plans.

Corbat - who the sources said has made building ties with regulators one of his top priorities - has been to Washington at least three times to meet with regulators since taking over.

He met twice with Daniel Tarullo, the Federal Reserve's top regulatory official, on November 6 and December 17, a Fed spokesman confirmed, while declining to give additional details. Corbat also met with Fed Chairman Ben Bernanke on November 6.

At the Fed, Corbat's team is following a drive Pandit started in March to talk more with regulators and make certain the company's next plan will be approved.

"I think that is smart and another positive sign about Citi's new leadership," said former FDIC chairman Sheila Bair, who thought Pandit was not suited to be CEO and had lobbied unsuccessfully for his ouster in 2009.

Based on her own meetings with Corbat when he was in charge of Citigroup's troubled assets during the financial crisis, Bair said she is sure "he is generally striking a positive tone with the regulatory community. He was always well-prepared, very conscientious, very professional, and provided accurate information."

MEETING REGULATORS

Besides the Fed, Corbat has also met with officials at the Federal Deposit Insurance Corp, the Office of the Comptroller of the Currency, and the Consumer Financial Protection Bureau, as well as the Treasury Department, according to one of the sources.

On November 2, his 16th day as CEO, Corbat had an afternoon meeting with FDIC Chairman Martin Gruenberg that was scheduled for one hour, according to an FDIC spokesman.

A Treasury spokeswoman confirmed that Corbat recently met with senior officials at the department, but declined to give details. Representatives for the OCC and CFPB declined to comment.

Corbat has also been to London. In a trip there he called on officials at the Bank of England and regulators at the Financial Services Authority. The Bank of England and the FSA declined to comment.

Corbat has been focusing on other areas too, including setting up his management team and crafting the 2013 budget. He has been meeting with investors, clients and employees, the sources said. He also had to deal with superstorm Sandy, which hit in his second week on the job and required moving trading operations out of lower Manhattan to back-up sites.

In December, Citigroup announced Corbat's first major move, a plan to eliminate 11,000 jobs, or about 4 percent of its workforce.

He is also expected to name his new management team soon. In his first week on the job, Corbat said he would have a dozen people reporting into him directly on an interim basis, compared with Pandit's seven when he last set his chain of command.

For now, Corbat's group includes the heads of Citigroup's three biggest segments, plus three chiefs for multi-national regions, the head of the U.S. national bank and the chiefs for finance, risk, operations and technology, and global public affairs.

(Reporting by David Henry in New York and Rick Rothacker in Charlotte, North Carolina; Additional reporting by Steve Slater in London; Editing by Dan Wilchins, Paritosh Bansal and Bernard Orr)

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