Citigroup (NYSE:C) has considered reducing the amount of cash it keeps on hand by approximately $35 billion, a move that could help the bank buy higher yielding assets or redeem expensive debt to boost earnings, reported Reuters Wednesday. Here are several reasons why this decision is possible and why it would benefit the financial institution:
The decision reflects a turning tide
Cutting its cash on hand would signal to investors and analysts that Citigroup — which had to be rescued by the United States government three times during the financial crisis — is increasingly confident that the majority of its problems are in the past.
Citigroup now poses a sharp contrast to JPMorgan Chase (NYSE:JPM), which emerged from the financial crisis stronger than any of the other major U.S. banks. During that period, JPMorgan was even called upon by U.S. authorities to help salvage failed financial institutions. It may seem surprising that Citigroup has the ability to reduce its cash levels, given its past, especially when its once-stronger rival has estimated that its capital levels are 17 percent below the amount required by the Basel III levels that will be required by 2019. In recent years, Citigroup has had to be more careful than its competitors because investors and regulators have had less confident in its stability following the crisis. But that opinion has changed as the bank’s fortunes have improved…