Citigroup Inc. C is likely to come under the direct supervision of European Central Bank (ECB), owing to the Wall Street giant’s proposed merger of U.K.-based Citibank International Limited into Dublin-based Citibank Europe Plc.
According to a Bloomberg report, citing people familiar with the matter, the merger will cross the threshold of €30 billion ($32 billion) in total assets, which ultimately forces the new entity under direct ECB supervision. Notably, the merged entity will have approximately $57 billion of assets. The report also noted that the merger decision is not linked with apprehensions over Britain’s likely exit from the European Union in a referendum scheduled in 2016.
The merger, which is likely to take place on Jan 1, 2016, received approval from the Irish High Court last month.
The likely direct ECB supervision will be a first for Citigroup. The central bank would have a say in the appointments of board and senior management. Further, ECB could subject the company to stress tests and higher capital requirements depending on the risk associated with the business.
Following the financial crisis that witnessed several bailouts of banks by governments, regulators worldwide are striving hard by laying down rules and regulations for the financial industry in order to prevent the reoccurrence of any such catastrophic event. Significantly large banks are always under regulatory supervision as a probable collapse of such banks not only threatens the entire financial system of the country but may have a ripple effect globally. Thus, a probable ECB supervision on Citigroup will once again reflect such regulatory efforts.
Citigroup has come a long way, since it was bailed out during the financial crisis, and continues to strengthen its financials with several restructuring moves including offloading of non-core assets and streamlining of international operations.
The proposed merger comes in line with its global strategy to become a “simpler, safer and stronger” company. With the merger, Citigroup intends to bolster its business across Europe, Middle East and Africa. The company noted that the merger will not have a material impact to its products and services.
Citigroup currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the finance space includes American River Bankshares AMRB, Middlefield Banc Corp. MBCN and Blue Hills Bancorp, Inc. BHBK, each sporting a Zacks Rank #1 (Strong Buy).
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