The most surprising thing about the memorandum of understanding signed by Citicorp was that it took regulators so long to impose it

The nation's biggest bank company revealed Friday that it had signed the agreement - the mildest form of regulatory oversight over weak banks - in February.

Analysts and bankers alike have been painfully aware for about two years of Citicorp's problems with asset quality and low reserves and capital. So that raised questions about whether Citicorp was benefitting from a double standard.

"One could argue that in light of what the regulators did at other banks, Citicorp should have had a formal agreement in place ... starting in late 1990," said Gregory Root, president of Thomson BankWatch.

Indeed, some think it was not coincidental that the regulatory order was imposed only after the bank began showing signs of recovery. According to this line of thinking, some regulators we afraid to move sooner because of Citicorp's size and influence on world markets.

In contrast, many other banks seem to get different treatment. Bank of Boston Corp., for example, entered into a memorandum of understanding in October 1989 when it announced its first of a series of quarterly operating losses.

"I certainly think Citicorp gets treated with special consideration, given the nature and size of the company," said Garland Hagen, executive vice president of Crestar Financial Corp.

Asked if regulators are giving Citicorp special treatment, a spokeswoman for the Office of the Comptroller of the Currency, Lee Cross, said: "Absolutely not." She declined to comment further on the timing of the action.

A spokesmen for the Federal Reserve Bank of New York, the other regulatory agency signing the memorandum, declined to comment.

Under terms of its memorandum, Citicorp must keep regulators informed quarterly - and in some cases monthly - on the progress of its capital plan, its loan quality, and its ongoing profits or losses. The order includes no specific targets for capital or reserves, according to people who have seen the document.

Wall Street Remains Calm

The stock market appeared to be unfazed by the Citicorp disclosure, which was supplemented by a restatement of second-quarter earnings to reflect lower revenues from mortgage servicing. Citicorp reduced its quarterly earnings to $143 million from $171 million.

On Monday afternoon, Citicorp stock was trading at $18.50 a share, down 37.5 cents from its Friday close on the New York Stock Exchange. A capital markets specialist said yields relative to Treasuries on the company's bonds were virtually lunchanged from Friday afternoon's levels. Fitch Investors Service Inc. affirmed Citicorp's debt ratings shortly after the bank's news was released. Though the bank announced late Friday that the memorandum was signed in February, several industry experts speculated that an informal understanding was in place for months before that.

Funding Problems

Citicorp's real troubles became manifest in 1990, when it had difficulty rolling over some short-term funding at palatable rates. But concerns about adverse reactions in the capital markets made regulators cautious during the darkest days. analysts and bankers said.

"I believe there was a conscious effort to avoid injecting uncertainty that could have a ripple effect in other markets," said Frank DeSantis. an analyst at Donaldson, Lufkin & Jenrette. "You have to treat a $200 billion bank differently. If a $5 billion bank meets with adversity, it doesn't move the market."

The enforcement action that finally was issued against Citicorp came in the same month that the Federal Deposit Insurance Corp's problem bank list ballooned by nearly $200 billion in assets, to $613 billion.

L. William Seidman, the former chairman of the FDIC, said in an interview on Monday that Citibank was probably put on the problem list in February when the agency's sister bank regulators took the enforcement action.

"If you've got a letter out against you, you're going to be on the problem list," said Mr. Seidman, who left the FDIC in October 1991.

Mr. Seidman and several other former regulators denied that Citicorp received any special treatment from agencies that supervise the company. "I think they [Citi] are treated like everyone else." he said. "When they became a problem, they went on the problem list."

Another former regulatory official, who did not want his name used, agreed, to an extent.

"I don't think there is a double standard," he said. "I just think big banks are treated differently in recognition that they are bigger and the impact of what happens to them is so much bigger."

Disagreement Among Agencies

Behind the scenes, according to sources close to the bank regulators, a battle brewed between the Comptroller's office and the Fed over when to move against Citicorp. The OCC, which regulates Citicorp's main bank subsidiary, was more eager than the Fed to impose a formal oversight plan, according to one former regulator. Indeed, the OCC boosted the number of regulators it had at the bank on a full-time basis in the second quarter of 1991 when some regulators were no longer needed at the Bank of New England.

"The Federal Reserve was more concerned about marketplace reactions." the former regulator said.

The fact that Citicorp waited half a year to disclose the agreements make it clear that the bank itself feared the marketplace. The disclosure came as the company is about to sell about $650 million of preferred stock. A Citicorp spokesman said the bank announced the regulatory action now to avoid an informal leak in presentations to investors about the accord.

Regulators. for their part, are required by law to disclose only issuance of formal agreements or cease-and-desist orders against banks - the two severest form of oversight.

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