Credit Suisse Sells Credit Derivatives Portfolio to Citigroup
August 05 2016 - 1:00PM
Dow Jones News
Citigroup Inc. bought a multibillion-dollar book of credit
derivatives from Credit Suisse Group AG during the second quarter
of this year, in another sign of European banks unloading risk.
Switzerland's Credit Suisse disclosed the sale of a portfolio
comprising around 54,000 credit derivative trades in its second
quarter results on July 28. The book was sold to Citigroup,
according to a person familiar with the matter. Bloomberg reported
Citigroup's purchase earlier on Friday.
A spokesperson for Citigroup Inc. declined to comment.
The move comes amid a broad shift in investment banking, with
many European banks scaling back capital-intensive trading
businesses and better capitalized U.S. lenders often stepping in to
buy them.
J.P. Morgan Chase & Co. also showed interest in buying the
Credit Suisse book, according to two people familiar with the
matter.
For Credit Suisse, the sale was part of a broader reshaping of
its business as the bank looks to dial back on volatile investment
banking and boost wealth management.
The derivatives portfolio was housed in Credit Suisse's
"strategic resolution unit", which is tasked with running off
unwanted assets. The sale contributed to a $9 billion reduction in
that unit's risk-weighted assets in the second quarter, according
to the bank's results presentation
The sale slashed the bank's leverage exposure by $5 billion,
Credit Suisse Chief Financial Officer David Mathers said in a July
28 results call. Such a reduction should help Credit Suisse meet
leverage ratio requirements -- a regulatory measure that focuses on
capital held relative to assets and investments.
The book consisted of credit-default swap trades, or CDS, not
seen as strategic to Credit Suisse's trading business, according to
two people familiar with the matter. It included nonstandardized
CDS and those which cover less liquid securities not present in
benchmark trading indexes, according to one of those people. Such
CDS would be penalized by higher capital requirements under Basel
III, a new regulatory framework for banks due to come into force in
2019, that person said.
Banks in Europe have been under more pressure to reduce their
balance sheets than their U.S. peers, which moved faster to thicken
their capital cushions following the 2008 financial crisis.
Write to Christopher Whittall at
christopher.whittall@wsj.com
(END) Dow Jones Newswires
August 05, 2016 12:45 ET (16:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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