By Christopher Whittall
Citigroup Inc. bought a multibillion-dollar book of credit derivatives from Credit Suisse Group AG during the second quarter of this year, in another sign of European banks unloading risk.
Switzerland's Credit Suisse disclosed the sale of a portfolio comprising around 54,000 credit derivative trades in its second quarter results on July 28. The book was sold to Citigroup, according to a person familiar with the matter. Bloomberg reported Citigroup's purchase earlier on Friday.
A spokesperson for Citigroup Inc. declined to comment.
The move comes amid a broad shift in investment banking, with many European banks scaling back capital-intensive trading businesses and better capitalized U.S. lenders often stepping in to buy them.
J.P. Morgan Chase & Co. also showed interest in buying the Credit Suisse book, according to two people familiar with the matter.
For Credit Suisse, the sale was part of a broader reshaping of its business as the bank looks to dial back on volatile investment banking and boost wealth management.
The derivatives portfolio was housed in Credit Suisse's "strategic resolution unit", which is tasked with running off unwanted assets. The sale contributed to a $9 billion reduction in that unit's risk-weighted assets in the second quarter, according to the bank's results presentation
The sale slashed the bank's leverage exposure by $5 billion, Credit Suisse Chief Financial Officer David Mathers said in a July 28 results call. Such a reduction should help Credit Suisse meet leverage ratio requirements -- a regulatory measure that focuses on capital held relative to assets and investments.
The book consisted of credit-default swap trades, or CDS, not seen as strategic to Credit Suisse's trading business, according to two people familiar with the matter. It included nonstandardized CDS and those which cover less liquid securities not present in benchmark trading indexes, according to one of those people. Such CDS would be penalized by higher capital requirements under Basel III, a new regulatory framework for banks due to come into force in 2019, that person said.
Banks in Europe have been under more pressure to reduce their balance sheets than their U.S. peers, which moved faster to thicken their capital cushions following the 2008 financial crisis.
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