Citigroup (C) is the only megabank headquartered in the U.S. to fail the Fed’s new round of stress tests.
In its just released ‘Comprehensive Capital Analysis and Review‘, an annual stress test of major banks operating in the U.S., the Fed says that Citi’s capital plan was among five that failed Federal Reserve stress tests. According to Bloomberg, Goldman Sachs (GS) and BofA (BAC) passed only after reducing their requests for buybacks and dividends. Below is the Fed’s explanation for its rejection of Citi’s capital plan:
“The Federal Reserve’s objection to Citigroup’s CCAR 2014 capital plan in part reflects significantly heightened supervisory expectations for the largest and most complex BHCs in all aspects of capital planning. While Citigroup has made considerable progress in improving its general risk-management and control practices over the past several years, its 2014 capital plan reflected a number of deficiencies in its capital planning practices, including in some areas that had been previously identified by supervisors as requiring attention, but for which there was not sufficient improvement. Practices with specific deficiencies included Citigroup’s ability to project revenue and losses under a stressful scenario for material parts of the firm’s global operations, and its ability to develop scenarios for its internal stress testing that adequately reflect and stress its full range of business activities and exposures. Taken in isolation, each of the deficiencies would not have been deemed critical enough to warrant an objection, but, when viewed together, they raise sufficient concerns regarding the overall reliability of Citigroup’s capital planning process to warrant an objection to the capital plan and require a resubmission.”
The Fed made no mention in its review of the bank’s discovery of a $400M loan fraud last month at its Mexico unit, Banco Nacional de Mexico, or Banamex.
Citigroup shares fell 5.2 percent to $47.55 in extended trading Wednesday in New York.