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
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