Citicorp is not cause for concern, analysts say

BANKING analysts believe there is little evidence that serious concerns about control lay behind the decision by US regulators to add Citicorp to the ranks of troubled banks they watch most closely.

Citicorp disclosed late last week that it was obliged to sign an informal 'memorandum of understanding' in February, acknowledging its problems with bad loans and its weak capital base.

The increased presence of on-site examiners - a fact of life for hundreds of smaller troubled banks in the United States - forced Citicorp to restate its second-quarter results last Friday, after the regulators disagreed with the bank's accounting of mortgage service earnings.

But industry analysts doubt that the increased scrutiny will turn up more serious examples of over-liberal accounting practices by Citicorp. February's enforcement action was more probably the result of concerns by the regulators that they be seen to be treating Citicorp like any other institution facing credit quality problems.

'The message is that Citicorp can't be looked at any differently simply because of its size,' says Greg Root, an analyst with Thomson Bankwatch in New York. 'The regulators can't be seen to be giving it favourable treatment, even though they appear to be ahead of schedule with plans to redress their problems.'

Rumours abounded last year that one of America's big money- centre banks had been added to the confidential 'troubled list' maintained by the US Federal Reserve and the Comptroller of the Currency. While the recession has caused huge loan-loss problems for most American banks, and resulted in lower ratings for many of the most aggressive lenders of the 1980s, no major US bank has been obliged to consent to such scrutiny in a decade.

But money-centre banks plagued with bad property loans all took action to improve their balance sheets, and Citicorp's bond-rating was confirmed last October when its results began to show the effects of restructuring.

Early in 1991 - after years of aggressive commercial and consumer lending that left it with more than dollars 10bn in non-performing loans - Citicorp's chairman, John Reed, announced a tough five-point plan to raise capital, sell non-strategic assets, and reduce costs and bad-loan exposure.

Word that Citicorp had joined the regulator's troubled list was 'after the fact,' said Debra Perry, an analyst with Moody's Investors Services, the credit-rating agency, simply acknowledging what was already known in banking circles.

Still, 'the timing is unfortunate,' according to Mr Root, who said the action came just as Citicorp was showing progress.

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