Now That’s Leverage!

“Tangible assets, which don’t include goodwill or intangibles, are 55 times the bank’s tangible equity …. Citi’s leverage worries some investors. Furthermore, possibly making matters worse are proposed accounting-rule changes that, if adopted, will prompt banks in 2010 to bring some off-balance-sheet assets back onto their books.

Tangible assets rise to nearly 59 times tangible equity if Citi has to bring about $120 billion in credit-card assets back onto its books in 2010, as is likely. Citi also may have to consolidate some of the roughly $670 billion in mortgage assets currently held by off-balance-sheet vehicles.

If the bank had to consolidate just 20% of these mortgage assets, tangible assets would rise to about 63 times tangible equity.

Reilly, David. 2008. “Job Losses Won’t Cut It for Citigroup.” Wall Street Journal (18 November): p. C 10.

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