Citigroup Inc. (C), the third-largest U.S. bank by assets, expects an impairment charge of $700 million in the first quarter as the lender cuts its investment in Istanbul-based Akbank TAS (AKBNK) by more than half.
The loss is about $1.1 billion before taxes, the New York- based company said on Friday in a filing with federal regulators. Citigroup is reducing its stake in Akbank to less than 10 percent from the 20 percent it currently owns, subject to market conditions and approvals, it said.
Chief Executive Officer Vikram Pandit has been selling assets after his capital plan was rejected by the Federal Reserve earlier this month. The company sold its entire stake in Shanghai Pudong Development Bank (600000) this week for $668 million.
“This development has nothing to do with growth plans of our bank,” Akbank said in a statement. Citigroup’s decision instead stems from how capital rules will treat the stake, Akbank said.
Citigroup’s first-quarter charge will result from recognizing currency losses related to the investment that were previously recorded in other comprehensive income and from marking down the current carrying value of the stake to market prices, according to the filing.
According to Bloomberg, Akbank closed trading in Istanbul yesterday with a market value of 29 billion lira ($16.1 billion), with shares up 21 percent so far this year. That would value Citigroup’s 20 percent holding at about $3.23 billion. The bank currently holds its investment at $3.4 billion.
Citigroup has about $1 billion of currency translation and hedging losses that would be recognized.
The firm said in its annual filing last month that while its investment in Akbank was temporarily impaired, it wasn’t recognizing a charge because management didn’t plan to sell the stake before the value recovered.
Akbank’s net income fell 16 percent to 2.54 billion liras in 2011. Citigroup cited a lower contribution from Akbank as one reason for the 2 percent drop in revenue in its European regional consumer banking unit.
