Citi, BNY Mellon and U.S. Bancorp File 10-Ks

Very brief notes on disclosures relating to RWAs and an SEC investigation (guess what it's about)

This post continues our series looking at new or notable disclosures in large bank or fintech 10-Ks. As always, the disclosures highlighted here are mentioned only because you might find them interesting, and not necessarily because they are scandalous or otherwise material.

Citigroup 10-K

From a regulatory perspective, there was not a lot that was new in Citi’s 10-K, but two things might be moderately interesting.

First, in terms of progress in addressing the firm’s consent orders, and consistent with the framing used in the compensation announcement for CEO Jane Fraser last week, Citi added a new sentence to the consent order discussion in its 10-K saying that Citi’s board “has determined that Citi’s plans are responsive to the Company’s objectives and that progress continues to be made on execution of the plans.”

Second, Citi updated a few paragraphs in its risk factor captioned “If Citi’s Risk Management Processes, Strategies or Models Are Deficient or Ineffective, Citi May Incur Significant Losses and Its Regulatory Capital and Capital Ratios Could Be Negatively Impacted” as shown below.

There are two ways to read the new sentence added to the second paragraph. One is to see it merely as a description of the generally applicable Board and OCC capital rules, which for all banks sometimes require prior approval for certain RWA treatments or model changes.

The other way to read it, though, is as saying that Citi is subject to prior approval requirements over and above those that are generally applicable to all banking organizations.

The Basel III rules and their generally applicable prior approval requirements have been in effect for several years, so the fact that the disclosure is just appearing now might hint that the second explanation is closer to the mark,¹ but without more it is impossible to say for certain which of these explanations fits best.

Still More SEC Investigation Disclosures

As with Citi, there was not much new from a regulatory perspective in the 10-K filed by the Bank of New York Mellon Corporation. It might actually be more surprising at this stage if a bank did not disclose that it had been invited to participate in the Commission's unapproved communications inquiry, but anyways, here is BNY Mellon’s entry.

Off-Channel Business-Related Communications

The Company has been responding to a request for information from the SEC concerning compliance with recordkeeping obligations relating to business communications transmitted on unapproved electronic communication platforms. SEC Staff has stated that it is conducting similar inquiries into recordkeeping practices at other financial institutions. The Company is cooperating with the inquiry.

Later in the day the annual report accompanying the 10-K filed by U.S. Bancorp also included a similar disclosure.

[A]s part of an industry-wide inquiry, the Company’s broker-dealer and registered investment advisor subsidiaries received from the Securities and Exchange Commission a request for information concerning compliance with record retention requirements relation to electronic business communications.

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1. Perhaps also relevant is Article VIII of Citibank’s 2020 consent order with the OCC, which requires Citibank to improve its capital planning practices to “at a minimum, ensure”:

(a) the development of and adherence to effective governance over capital planning and calculations;

(b) that capital and risk-weighted assets are appropriately identified and reported; and

(c) that periodic assessments of the Bank’s capital calculations and management and regulatory reporting ensure the capital calculations adequately take into account the Bank’s size, complexity, and overall risk profile.