New accounting rule to add US$5b to Citigroup assets

Citigroup Inc, the world's largest financial services company, yesterday said a new accounting rule for variable interest entities (VIEs) will add about US$5 billion to its assets and liabilities, steeply down from the US$55 billion it had earlier estimated.

The disclosure is one of many expected by Standard & Poor's 500 companies after Enron Corp's collapse.

New accounting rules are forcing some companies to move VIEs, once called special-purpose entities, onto their balance sheets.

The Financial Accounting Standards Board, which sets accounting rules for US companies, adopted its Interpretation No 46, or FIN 46, to change how companies treat VIEs.

In its quarterly report filed with the US Securities and Exchange Commission (SEC), New York-based Citigroup said it restructured some VIEs in a way that lets it keep them off its consolidated balance sheets. 'As we continue to evaluate the impact of applying FIN 46, additional entities may be identified that would need to be consolidated,' Citigroup said.

Citigroup said it ended the second quarter with US$1.19 trillion of assets.

FIN 46 was designed to curb abuses from creative financings, such as those used by Enron to keep debt off its books. Many are legitimate, while others might conceal debt.

The rule change is significant if it affects companies' earnings per share, cash flow, debt-to-equity ratios and credit ratings.

Previously, companies could keep special-purpose entities off their books if an outside group contributed as little as 3 per cent of total capital. Now, companies must consolidate those entities if they bear a majority of the risk.

Last month, General Electric Co said it would move US$50 billion of off-balance-sheet assets and liabilities onto its balance sheet this quarter.

Several banks and automakers have large potential exposure to the rule change, according to a June report from Credit Suisse First Boston.

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