Citigroup fails Fed's stress tests
14 March 2012
Citigroup Inc, the lender that received the most government aid during the financial crisis, would try again to win approval for its capital plan after it failed to meet minimum standards in US stress tests.
The Federal Reserve objected yesterday to Citigroup's plan, which could have included a call for a higher dividend. The bank said it would submit a revised version later this year. SunTrust Banks Inc (STI), Ally Financial Inc and MetLife Inc (MET) also failed to measure up to the Fed's test of how 19 of the nation's biggest lenders would be expected to perform in a severe economic slump.
According to analysts, the results would probably come as a blow to chief executive officer Vikram Pandit, who had told investors the New York-based bank was ready to return capital to shareholders after cutting the dividend during the financial crisis.
Capital plans submitted for the tests typically include higher dividend requests and share buybacks, which the Fed allowed for JPMorgan Chase & Co and Wells Fargo & Co.
After scrapping Citigroup's dividend in 2009 as part of the company's $45 billion bailout, which was later repaid, Pandit reinstated a 1-cent payout last year and since then has been selling riskier assets to rebuild the bank's strength. The Fed didn't object to keeping the current quarterly payout, Citigroup said.
The Fed is testing to check how the capital of US banks might fare under a deep recession and a second housing crisis. The scrutiny involved 19 banks and was focused on variables including trading and counterparty losses and write-offs on credit cards and first- lien mortgages. Most of the banks that underwent the tests passed.