Citigroup, the U.S. bank with the most derivatives, purchased a portfolio of credit-default swaps from retreating rival Credit Suisse Group AG, two people with knowledge of the matter said.
Credit Suisse said last week it had agreed to sell the positions, which consist of about 54,000 trades, to an unidentified buyer, reducing its leverage exposure by $5 billion. The gross notional value of the portfolio is about $380 billion, said people with knowledge of the assets, who asked not to be identified because the size of the portfolio or identity of the buyer aren't public.
Credit Suisse Chief Executive Officer Tidjane Thiam is pulling out of some securities businesses as he seeks to boost the bank's capital ratios and rein in a culture he said took too much risk before he joined. The deal shows how some of the biggest U.S. banks are looking to gain market share in trading from the restructurings of European rivals, including Credit Suisse and Deutsche Bank AG.
Spokeswomen for Credit Suisse and Citigroup declined to comment.
Citigroup, run by CEO Michael Corbat, bought about $250 billion in notional value of credit derivatives from Deutsche Bank last year and was in talks with the German bank to buy more, Bloomberg reported in March. The New York-based firm had $2.1 trillion of notional credit derivatives, and more total derivatives than any other U.S. lender, at the end of March, according to a report from the Office of the Comptroller of the Currency.
The portfolio encompassed all the CDS the Swiss bank had in its strategic resolution unit, the part of the firm it's winding down, while it still has some credit derivatives in the ongoing trading business. Credit Suisse wants to reduce leverage exposure at the SRU by about 70 percent over the next three years, Chief Financial Officer David Mathers said last week. That measure was $148 billion at the end of June, down from $167 billion at March 31.
"The point of the SRU is to reduce it," Mathers said.
Credit-default swaps are insurance contracts that pay out if a borrower defaults. Investors use them to speculate on the borrower's ability to repay debt or to guard against losses. The instruments helped to fuel the 2008 credit crunch and regulators have been trying to make them safer and less opaque.
Many of the swaps are uncleared, meaning that investors trade them directly with each other rather than through one of the clearinghouses that are mandatory for many trades after the crash, one of the people said. Europe's biggest banks will need billions of dollars to meet new rules, with regulators asking them to hold more collateral against uncleared swaps, regulators said earlier this year.
The batch of trades also includes so-called single-name swaps, which are tied to individual companies' creditworthiness, as opposed to an index of securities, the person said.