Updated with Citigroup comment.
NEW YORK (TheStreet) -- Shares of Citigroup (C) were falling in after-markets trading after the Federal Reserve said the bank would fail to meet minimum capital requirements under the supervisory stress test scenario if it went ahead with its proposed capital deployment plans.
The bank would have a Basel 1 Tier I Common Capital Ratio of 5.9% assuming it takes no capital actions after first quarter of 2012, managing to pass the Fed's minimum requirement of 5% in a dire scenario that sees unemployment rate of 13%, a 50% correction in the equity markets and a big contraction in real GDP.
However, its minimum stressed capital ratio falls to 4.9% if it conducts all proposed capital actions through 2013.The announcement was a surprise, considering Citigroup had a healthy Basel I Tier 1 Capital ratio of 11.8%, among the best within the money center banks. It also came as a major disappointment to investors, who have been expecting Citigroup to return significant capital starting in 2012 and 2013. CEO Vikram Pandit has repeatedly said that the bank expects to return excess capital to shareholders. " The results showed that Citi exceeded the stress test requirements without the capital actions Citi proposed," Citigroup said in a statement. "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 bank said the Fed had no objections to its continuing its current dividend program. The bank pays a quarterly dividend of a penny a share. Several analysts had expected Citigroup to surprise the markets with a significant dividend or buyback program. Few had expected the bank to fail the test. Shares of Citigroup had risen more than 6% in late trading Thursday after JPMorgan Chase (JPM) surprised the markets Tuesday afternoon with its announcement of a 20% dividend increase and plans to buyback upto $12 billion in 2012, two full days ahead of the Federal Reserve's anticipated stress test results announcement. The announcement prompted the Fed to advance its announcement two days ahead of schedule to Tuesday at 4:30 p.m. SunTrust (STI) was also identified as a bank that would fail to meet the requirement if it went ahead with its capital deployment plans. The regional bank would see its stressed capital ratio at 5.5%, assuming it undertook no capital actions. The ratio would fall to 4.8% if SunTrust went ahead with its plans. Ally Financial did not meet the Fed's criteria under either circumstance. Bank of America (BAC) managed to pass the stress test with a stressed Tier 1 Capital ratio of 5.7% assuming no capital action was taken. The ratio rises to 5.9% assuming proposed capital actions are taken through the fourth quarter of 2013. Bank of America had said that it would not put in a request to return capital this time around. Regions Financial (RF), the other weak bank that some analysts expected to fail the test, also managed to pass the critical test, with its tier 1 Capital ratio coming in at 5.7% assuming no capital actions were taken and 6.6% assuming it went ahead with its proposed capital plans through 2013. --Written by Shanthi Bharatwaj in New York
>To contact the writer of this article, click here: Shanthi Bharatwaj. >To follow the writer on Twitter, go to http://twitter.com/shavenk. >To submit a news tip, send an email to: email@example.com.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV