Oppenheimer's Kotowski notes that Citi's historical loan losses were much lower than that projected in the tests. The bank's actual First Lien Mortgage delinquency and non-accruals, for instance, were lower than that of Bank of America and JPMorgan last year.
"This test is not a methodical apples-to-apples comparison," said David Konrad, analyst at KBW, who was not too surprised by the loss rate projections. "A lot of it is qualitative."
Konrad does not believe investors should rush to any conclusions based on the Fed's loss projections about Bank of America and Citigroup one way or the other, noting that it is an academic exercise and not indicative of future performance.
He does believe, however, that the stress tests have put capital adequacy concerns for both banks to rest."For both Bank of America and Citigroup to be above 5% at the end of the stress tests means it is time to move past concerns about the risk of the balance sheet," said Konrad, noting that Citigroup entered the crisis with less than 5% in capital and has come a long way in building its balance sheet. The more immediate concern for investors then would be whether Citi will actually get approval for a revised plan.
Citi Investors in "Penalty Box"Citigroup has said it plans to resubmit its capital plans to the regulator later in the year. But it remains unclear what level of capital the Fed would currently be comfortable with for Citi to allow a buyback.
>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.
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