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Citigroup to take US$300 million 'repositioning charge' in 4th quarter

Citigroup Inc executives encouraged foreign-exchange traders to use electronic chat rooms to share client orders with employees of rival banks, a practice that forced finance companies to pay US$10 billion in regulatory fines, according to evidence presented to a London employment tribunal.

[NEW YORK] Citigroup Inc will take a US$300 million "repositioning charge" in the fourth quarter to "resize infrastructure and capacity" throughout its businesses, Chief Financial Officer John Gerspach said on Wednesday.

Citi will also add US$300 million to US$400 million in loan reserves from the third quarter for energy loans, based on the expectation that oil prices will remain low, Gerspach told the Goldman Sachs US financial services conference.

Depressed oil prices have put several US banks under pressure because of their exposure to loans to oil companies.

Citi is due to report fourth-quarter earnings on Jan 15. "From an expense point of view, we will be taking a repositioning charge of say about US$300 million in Citicorp in the fourth quarter," Gerspach said. "That is as we continue to resize our infrastructure and our capacity to deal with a continuing low-revenue environment." Gerspach declined to comment when asked about investment banking bonuses, saying Citi would "pay competitively".

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The last time Citi took a repositioning charge as large as this was in the fourth quarter of 2014, said Barclays analyst Jason Goldberg. At that time, the charge was US$655 million.

Morgan Stanley said on Tuesday it would take a US$150 million severance charge related to workforce reductions in the fourth quarter.

The investment bank is cutting 1,200 workers worldwide, a source told Reuters, as tougher capital rules and mounting competition force it to improve profitability, following one of its slowest quarters for bond trading since the 2008 crisis.

Gerspach also said Citigroup would need to issue $10 billion to $15 billion in net new debt to comply with new rules designed to help banks better weather a crisis.

Speaking at the same conference, Bank of America Chief Executive Brian Moynihan responded to a question about whether its new debt issuance under the rules would be US$15 billion, by saying the number was in the "right ballpark." Wells Fargo & Co said last month it would likely need to issue an additional US$40 billion to $60 billion of long-term debt to comply with the rules.

The rules, proposed by the Federal Reserve on Oct 30, aim to ensure that some of the biggest and most interconnected US banks have enough equity capital and long-term debt to withstand crises.