Bloomberg quotes Michael Shemi, a director at Christofferson, Robb & Co., a New York-based investment firm, who said: 'Investors are going to be disappointed. Citi appears to have been too aggressive with their capital plans'.
The news organisation says that 'the results are a blow to Chief Executive Officer Vikram Pandit, who has told investors the New York-based bank is ready to return capital to shareholders after slashing the dividend during the financial crisis. Capital plans submitted for the tests typically involve requests for higher dividends and share buybacks, which the Fed allowed for JPMorgan Chase & Co. and Wells Fargo'.
Citi released the following statement Tuesday on the stress test results:
'The Federal Reserve today released the results of its hypothetical severe stress test scenario. The results showed that Citi exceeded the stress test requirements without the capital actions Citi proposed. However, the Federal Reserve advised Citi that it objected to Citi's proposed return of capital to shareholders. In light of the Federal Reserve's actions, Citi will submit a revised Capital Plan to the Federal Reserve later this year, as required by the applicable regulations.
'The Federal Reserve advised Citi that it has no objection to our continuing the existing dividend levels on our preferred stock and our common stock, and we plan to do so, subject to approval by the Board of Directors each quarter. The Federal Reserve also advised that it has no objection to Citi redeeming certain series of outstanding trust preferred securities, as Citi proposed in its Capital Plan.
'We plan to engage further with the Federal Reserve to understand their new stress loss models. We strongly encourage the public release of these models and the associated benchmarks and assumptions. We believe greater transparency in this process will best serve all banking institutions and their shareholders as well as the international regulatory community and market participants, and will encourage a level playing field globally.
'Citi remains among the best capitalized large banks in the world, with a Tier 1 Common capital ratio of 11.8% as of December 31, 2011. The Federal Reserve's announcement today says that Citi would have a 5.9% Tier 1 Common capital ratio in the severe stress scenario without the proposed capital actions. Based on data as of September 30, 2011, according to the Federal Reserve, the proposed capital actions would have resulted in a Tier 1 Common ratio of 4.9% in the severe stress scenario. Citi has had eight straight quarters of positive net income and has reduced Citi Holdings to approximately 12% of total assets'.