The stress test results are out and this time
) has come out with flying colors. The company has not only
managed to clear this year's stress test but has outperformed
other major banks including
JPMorgan Chase & Co.
Bank of America Corporation
Wells Fargo & Company
BANK OF AMER CP (BAC): Free Stock Analysis
CITIGROUP INC (C): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis
WELLS FARGO-NEW (WFC): Free Stock Analysis
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In its latest capital plan, Citi has asked for $1.2 billion worth
of share repurchases through the first quarter of 2014 and no
change in dividend levels. The company currently pays common
stock dividend of 1 cent per share with no share buyback plan.
The Fed had set the Tier I common capital ratio at 5% or above to
clear the current stress test. As per the Fed's data, Citi's
projected Tier I common capital ratio came in at 8.3% under
hypothetical economic environment. The stressful circumstances
included unemployment rate reaching 12.1%, home prices plummeting
nearly 21%, severe recession in the U.S., Europe and Japan
leading to about 50% fall in equity prices along with the U.S.
GDP falling 6.1%.
Though Citi satisfied the stress test requirements, the approval
of its latest capital plan is contingent on the Federal Reserve.
The Fed will announce its approval or rejection of the plan on
Mar 14, 2013.
Last year, the Fed had stated that Citi's capital ratio would
fall to 4.9% after considering its capital plan. Hence, the
regulator had rejected the company's new proposal.
The clearing of the stress test shows that Citi's efforts to
streamline its operations are now bearing fruit. Over the past
few years, the company has been restructuring its business,
making several layoffs, selling assets and trimming costs.
The news will also enhance the confidence of the investors in the
company. Citi has come a long way since 2008, when it had to take
$45 billion of bail-out money to survive the economic downturn.
Through the stress test the company has shown that its capital
position has significantly improved from 2008.
Now that it has cleared the stress test, Citi should not get
complacent with its capital enhancement initiatives. The company
should continue to strive for improvement in its balance sheet
and capital ratios.
Citi currently retains its Zacks Rank #3 (Hold).