With AMBAC on Ice, Citi Surveys Options

With the sale of its municipal bond insurance subsidiary on hold indefinitely, Citicorp still finds itself short of capital.

The nation's largest banking company was expecting a two-fold benefit by spinning off nearly half of AMBAC Indemnity Corp. In addition to a cash injection of at least $400 million, Citicorp would have freed up at least $1 billion needed to capitalize AMBAC.

But investors were unwilling to cough up an acceptable price, and the bank has temporarily withdrawn the offering.

"I'm afraid they'll have to live with [AMBAC] a little bit longer," said Raphael Soifer, an analyst with Brown Brothers Harriman & Co.

Falls Short of New Minimum

That means Citicorp will have to find other ways to boost its capital ratios - yet another hurdle for the besieged bank.

Citicorp has lower capital ratios than any other money-center bank. It finished 1990 with a total risk-based capital ratio of 6.52%, well below the 8% requirement that takes effect next year. Even after several large placements of convertible preferred stock early this year, Citicorp's total capital ratio was only 7.5% on March 31.

Offsetting the impact of a deferred AMBAC sale will not be easy. Although Citicorp is considering a variety of moves, no single short-term capital-raising plan would raise as much.

The company has taken some additional steps to raise capital beyond what earnings will generate. It has securitized $3.4 billion in consumer loans, eliminating the need for capital to support those assets.

Stock Liquidations

And the bank reportedly liquidated large positions in stocks of BankAmerica Corp., Valley National Corp. and First Interstate Bancorp, locking in the gains on those investments. A Citicorp spokeswoman declined to comment on any stock sales.

Citicorp officials have also considered selling part of the its credit card operation and some venture capital investments.

Though Citicorp declined to comment on the AMBAC deferal, analysts are confident the AMBAC deal will get done eventually. "Our expectation is that the issue will got out in a relatively short amount of time," said Tanya Azarchs, a vice president at Standard & Poor's Corp.

Meanwhile, Citicorp will not suffer a penalty for coming up short on capital. The risk-based capital guidelines will not take full effect until the end of next year. And Citicorp is focusing more on cleaning up its existing holdings rather than on making acquisitions, meaning it's less capital-hungry than more expansion-minded banks.

The market performance of AMBAC's closest competitor does not bode well for the Citicorp subsidiary. Municipal Bond Investors Assurance Inc.'s stock price has dropped from $35 a share 10 days ago to $30.50 on Thursday. Such a move is not likely to stimulate investor demand for equity in AMBAC.

PHOTO : Off the Block

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