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Citigroup expects to issue up to $7B of long-term debt

Citigroup Inc. management said the bank could issue as much as $7 billion of long-term debt to comply with new regulatory requirements.

Speaking Jan. 26 on a call with fixed-income analysts, management said the bank currently holds roughly $108 billion of debt that would be eligible under the regulation, known as total loss-absorbing capacity, or TLAC.

"If you think about a ballpark of six months of market access and the current level of TLAC-eligible debt that we have of ballpark of $108 billion … you'd expect us to need something in the ballpark of $6 [billion] to $7 billion of debt," said CFO John Gerspach, adding that it remains early and some details in the regulation have yet to be pinned down.

Management spent much of the call discussing regulatory ratios. As of year-end, the bank's capital ratios such as Tier 1 capital were well above regulatory requirements. The only measure the bank was not yet in compliance with was TLAC, which requires the bank have long-term debt equal to 9.0% of its risk-weighted assets. At year-end, the bank's TLAC ratio was at 8.8%, but the regulation will not be implemented until January 2019, giving the company plenty of time to reach the level. The company's calculation was based on the Federal Reserve's final rule issued in December 2016, which executives said was particularly helpful with regard to permanently grandfathering certain existing debt as TLAC-eligible.

With a ratio of 8.8%, the bank's shortfall of TLAC debt was just $2 billion, and Gerspach's estimate of $6 billion to $7 billion was in response to an analyst's question about how much of a buffer the bank would look to maintain over the minimum requirement.

Analysts also asked Citigroup's management about the potential effects of tax reform policy or a potential trade war with Mexico following the swearing-in of President Donald Trump. Management largely said it is too early to discuss the likely outcome as few details are available. But the executives did say they do not expect to be significantly affected by changes to deductability of interest since the bank reports interest income. And they said the Mexican economy could remain competitive on a global stage regardless of what happens to its trade with the United States.