Citigroup (C) in talks to sell loans to KKR

Citigroup (NYSE: C) believes that it has too many leveraged loans on its balance sheet, so it may sell them to KKR at a discount. According to the FT, "banks have been looking for ways to help clear some of the $300bn worth of leveraged loan commitments they have made." The amount of money being raised to buy problem bank loans could be as much as $170 billion.

Citi provided financing for a number of deals put together by KKR and its peers. Will it now lend them money to buy them at a discount off the big bank's own balance sheet? It sounds like a round trip.

While regulators and investors in the large money center banks would like to see their balance sheets improved, there is some irony in the idea that these banks might help fund entities that could purchase the byproducts of their lending mistakes. Investors should hope that regulators keep a keen eye on the practice so that the banks are not accused of trying to sweep their problems under a rug that they are helping companies like KKR finance.

Douglas A. McIntyre is a partner at 24/7 Wall St.