Wednesday, March 26, 2014

Today after the market closed Citigroup's Capital Plan was rejected by the Fed.  This was part of the Comprehensive Capital Analysis and Review (CCAR).  In it's statement, the Fed objected it because of qualitative, not quantitative reasons. These include  deficiencies in it's capital planning processes which had been identified by supervisors and hadn't sufficiently improved in the eyes of the Fed.  Specifically Citi's ability to project revenue and losses under extremely stressful scenarios, and internal stress testing that adequately reflect it's full range of businesses and exposure.   The Fed noted "Citigroup has made considerable progress in improving its general risk-management and control practices over the years".

In the capital plan they requested a $6.4 Billion share repurchase and an increased  quarterly dividend to $.05.  They will not be allowed to increase either, but will continue with their $1.2 billion buyback and $.01 dividend. They will be given 30 days to resubmit their plan, hopefully complying with the Fed.

Although they performed poorly in the stress test, they were still above the Fed's minimum 5% Tier 1 common ratio, at 6.5%.  Citi is clearly being subjected to the highest standards because of it's global scale and complex operations.  Citi remains one of the best-capitalized financial institutions in the world.  In their statement they said they will work closely with the Fed to bring their capital planning process in line with their qualitative standards.

The stock is down 5.6% in after hours, which diminishes the return since our buy-in.

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