NEW YORK — Citigroup Inc. disclosed Friday that the value of its share of the retail-brokerage joint venture with Morgan Stanley might be impaired.
The carrying value of its 49% stake in Morgan Stanley Smith Barney, a joint venture formed in 2009 when Citigroup started to rid itself of unwanted businesses and loans, remains at about $10 billion. But "analysis indicates that a temporary impairment may exist; however, based on this analysis, the potential temporary impairment was not material," the New York bank said in its annual earnings filing with the Securities and Exchange Commission.
The two companies will soon start to negotiate the second part of their original deal, which could lead to a reduction of Citigroup's ownership. Citigroup has said it wants to sell its stake in the joint venture, and Morgan Stanley has made clear it wants to own the operation outright.
The Wall Street Journal reported this week that Citigroup could face a write-down when Morgan Stanley exercises its first option to increase its ownership of the venture.
Citigroup also said that it lost money in its securities-trading business on 54 of 260 trading days last year. On one day, the loss was greater than $180 million.
Citigroup updated its collateral requirements in case ratings companies were to downgrade the bank's bonds. Had all Citigroup legal entities been downgraded by one notch by Dec. 31, the bank would have needed to post $3.1 billion in additional collateral, up from $2.6 billion three months earlier.
Moody's Investors Service warned recently that it might downgrade big banks and large investment banks because it believes their ability to generate revenue after the financial crisis has been impaired.
Citigroup said in its filing that it estimates a one-notch downgrade of its holding company could result in a $1.3 billion loss of funding due to derivatives triggers and additional margin requirements; "a one-notch downgrade by Fitch of Citigroup's commercial paper/short-term rating could result in the assumed loss of unsecured commercial paper of $6.4 billion," Citi said.
A one-notch downgrade of Citibank's senior debt rating, its main commercial-banking entity, could result in about a $2.4 billion funding requirement in the form of collateral and cash obligations, Citi said.
The bank said it "expects to incur additional operating expenses" related to implementation of new mortgage-servicing standards that are part of the recent settlement among major mortgage lenders and the federal government and 49 state attorneys general to resolve allegations of faulty foreclosure procedures.
Citigroup further disclosed that it received subpoenas related to its issuance or underwriting of mortgage-backed-securities. "These inquiries include a subpoena from the Civil Division of the Department of Justice that Citigroup received on Jan. 27, 2012," Citi said.
As with most big U.S. banks, Citigroup reduced its exposure to troubled European countries. But the sum of Citigroup's cross-border loans, securities, deposits with banks, and other cross-border outstandings to some more-stable countries went up, a sign that Citigroup isn't retrenching from its global banking strategy. Commitments, such as binding cross-border letters of credit and loan commitments, to the U.K. rose to $106 billion on Dec. 31, from $75 billion three months earlier. Commitments to Germany rose to $65 billion, from $49 billion. Commitments to the Netherlands and Brazil — and even to Italy — also increased, Citigroup disclosed.
