Citigroup Reasserting Itself in Debt Market After Meeting Regulatory Obligations
- Regulatory requirements in the US had forced Citigroup to rethink its debt strategy.
The US debt market welcomed back another key player this week, with Citigroup Inc. re-entering the playing field after a nearly two-year absence, culminating in the sale of around $2.5 billion in bonds, according to a Bloomberg report.
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Citigroup’s past exit from the debt market two years ago was facilitated by a shift in domestic regulations, which ultimately forced the lender to emphasize the issuing of more expensive debt. Those days are over however, with its latest sale of $2.5 billion of bonds backed by customers’ credit-card balances.
TLAC Redefines US Debt Market
One of the biggest hurdles that lenders must grapple with presently is adhering to the Total Loss-Absorbing Capacity (TLAC) rule. First proposed back in October 2015, the Federal Reserve Board on Friday re-oriented the ability of large domestic and foreign banks operating in the US to be resolved without extraordinary government support or taxpayer assistance.
Per the rule, banking institutions would be required to meet a new long-term debt requirement and a new TLAC requirement. The requirements were designed to strengthen financial stability by improving the ability of banks covered by the rule to withstand financial stress and failure without imposing losses on taxpayers. This called for holding sufficient amounts of long-term debt, which could be converted to equity during resolution.
However, after satisfying the majority of its debt-raising requirements under the TLAC rule, Citigroup has become the latest bank to re-enter the debt market as it looks to be a bigger player in the sale of such securities. Other banks could likely follow suit as nothing prohibits them from doing so after meeting these regulatory requirements.
Profits in Focus
One of the draws of securitized debt is that it is usually cheaper than borrowing in the corporate bond market, given that asset-backed debt is safer and comes equipped with less interest. Earlier this week, Citigroup’s three-year credit card ABS were sold on with a Yield Yield A yield is defined as the earnings generated by an investment or security over a particular time period. This is in typically displayed in percentage terms and is in the form of interest or dividends received from it.Yields do not include the price variations, which differentiates it from the total return. As such, a yield applies to various stated rates of return on stocks, fixed income instruments such as bonds, and other types of investment products.Yields can be calculated as a ratio or as a A yield is defined as the earnings generated by an investment or security over a particular time period. This is in typically displayed in percentage terms and is in the form of interest or dividends received from it.Yields do not include the price variations, which differentiates it from the total return. As such, a yield applies to various stated rates of return on stocks, fixed income instruments such as bonds, and other types of investment products.Yields can be calculated as a ratio or as a Read this Term of around 1.8%. By extension, Citigroup’s recently issued three-year unsecured notes traded with a yield of approximately 2.1%.
In the past, Citigroup has instead cut back on issuing credit-card asset-backed securities while instead opting for the sale of longer-term, unsecured debt. By selling more securitized debt, Citigroup hopes to cut its borrowing costs and boost its lending profit.
Despite the recent sale this week, Citigroup would still need to issue approximately another $2 billion of long-term bonds to satisfy the TLAC requirement in its entirety. This figure is down from roughly $7 billion at the end of the Q3 2016 and $15 billion at the end of 2015, highlighting the efforts the bank has made to meet these Obligations Obligations In finance, an obligation is a financial responsibility where the terms of a contract must be met. Should an obligation between parties fail then the party who is at default may face legal action. In this scenario, the guilty party will not only have to agree to pay the set amount to fulfill the contractual arrangement but may also be responsible for covering all legal proceedings cost. Routine payments or outstanding debt of any kind are considered financial obligations, so if someone owes you In finance, an obligation is a financial responsibility where the terms of a contract must be met. Should an obligation between parties fail then the party who is at default may face legal action. In this scenario, the guilty party will not only have to agree to pay the set amount to fulfill the contractual arrangement but may also be responsible for covering all legal proceedings cost. Routine payments or outstanding debt of any kind are considered financial obligations, so if someone owes you Read this Term.
The US debt market welcomed back another key player this week, with Citigroup Inc. re-entering the playing field after a nearly two-year absence, culminating in the sale of around $2.5 billion in bonds, according to a Bloomberg report.
To unlock the Asian market, register now to the iFX EXPO in Hong Kong
Citigroup’s past exit from the debt market two years ago was facilitated by a shift in domestic regulations, which ultimately forced the lender to emphasize the issuing of more expensive debt. Those days are over however, with its latest sale of $2.5 billion of bonds backed by customers’ credit-card balances.
TLAC Redefines US Debt Market
One of the biggest hurdles that lenders must grapple with presently is adhering to the Total Loss-Absorbing Capacity (TLAC) rule. First proposed back in October 2015, the Federal Reserve Board on Friday re-oriented the ability of large domestic and foreign banks operating in the US to be resolved without extraordinary government support or taxpayer assistance.
Per the rule, banking institutions would be required to meet a new long-term debt requirement and a new TLAC requirement. The requirements were designed to strengthen financial stability by improving the ability of banks covered by the rule to withstand financial stress and failure without imposing losses on taxpayers. This called for holding sufficient amounts of long-term debt, which could be converted to equity during resolution.
However, after satisfying the majority of its debt-raising requirements under the TLAC rule, Citigroup has become the latest bank to re-enter the debt market as it looks to be a bigger player in the sale of such securities. Other banks could likely follow suit as nothing prohibits them from doing so after meeting these regulatory requirements.
Profits in Focus
One of the draws of securitized debt is that it is usually cheaper than borrowing in the corporate bond market, given that asset-backed debt is safer and comes equipped with less interest. Earlier this week, Citigroup’s three-year credit card ABS were sold on with a Yield Yield A yield is defined as the earnings generated by an investment or security over a particular time period. This is in typically displayed in percentage terms and is in the form of interest or dividends received from it.Yields do not include the price variations, which differentiates it from the total return. As such, a yield applies to various stated rates of return on stocks, fixed income instruments such as bonds, and other types of investment products.Yields can be calculated as a ratio or as a A yield is defined as the earnings generated by an investment or security over a particular time period. This is in typically displayed in percentage terms and is in the form of interest or dividends received from it.Yields do not include the price variations, which differentiates it from the total return. As such, a yield applies to various stated rates of return on stocks, fixed income instruments such as bonds, and other types of investment products.Yields can be calculated as a ratio or as a Read this Term of around 1.8%. By extension, Citigroup’s recently issued three-year unsecured notes traded with a yield of approximately 2.1%.
In the past, Citigroup has instead cut back on issuing credit-card asset-backed securities while instead opting for the sale of longer-term, unsecured debt. By selling more securitized debt, Citigroup hopes to cut its borrowing costs and boost its lending profit.
Despite the recent sale this week, Citigroup would still need to issue approximately another $2 billion of long-term bonds to satisfy the TLAC requirement in its entirety. This figure is down from roughly $7 billion at the end of the Q3 2016 and $15 billion at the end of 2015, highlighting the efforts the bank has made to meet these Obligations Obligations In finance, an obligation is a financial responsibility where the terms of a contract must be met. Should an obligation between parties fail then the party who is at default may face legal action. In this scenario, the guilty party will not only have to agree to pay the set amount to fulfill the contractual arrangement but may also be responsible for covering all legal proceedings cost. Routine payments or outstanding debt of any kind are considered financial obligations, so if someone owes you In finance, an obligation is a financial responsibility where the terms of a contract must be met. Should an obligation between parties fail then the party who is at default may face legal action. In this scenario, the guilty party will not only have to agree to pay the set amount to fulfill the contractual arrangement but may also be responsible for covering all legal proceedings cost. Routine payments or outstanding debt of any kind are considered financial obligations, so if someone owes you Read this Term.