"We believe significant capital returns remain a matter of when, not if. While we believe that the Fed's objection to C's 2012 capital return plan is embarrassing, it is likely not indicative of an underlying capital problem," Sandler O' Neill analyst Jeffrey Harte wrote in a report. "We continue to expect C to generate more than $60B of excess regulatory capital over the next few years and to return the vast majority of that regulatory capital to shareholders."

Is Citi Still Too Risky?

But what is troubling is the Fed's calculation of theoretical losses at Citigroup in the event of a severe economic downturn.

Several analysts noted that the Fed seems to have taken a much harsher view of Citigroup relative to peers and relative to the bank's own historical loan loss experience.

Its projections even seems to have taken the bank by surprise. "We plan to engage further with the Federal Reserve to understand their new stress loss models. We strongly encourage the public release of these models and the associated benchmarks and assumptions," the bank said in a statement following the results.

Projected loan losses at Citigroup in the hypothetical supervisory stress scenario stood at $50.3 billion, in line with Bank of America's projected loss of $51.3 billion. But projected loss rates across portfolios at Citigroup are actually much steeper. For instance, projected loan losses as a percent of average loan balances is 11.2% at Citigroup versus 8.3% at Bank of America.

Analysts attribute some of the higher loss projections to the Fed's somewhat more conservative view on international consumer loans. The projected loss rate for "other consumer" loans at Citigroup is 23.4% for instance, versus 5.6% at Bank of America and 5.9% on an average for the 19 bank holding companies.

Citi's international presence has often been touted as its biggest advantage over its rivals, so the fact that its global business is viewed as a big risk is disconcerting to say the least.

But analysts don't know quite what to make of the Fed's projections. "In general loss estimates in the supervisory stress scenario appeared high, and in some cases, arbitrary and difficult to reconcile by bank," wrote Moshe Orenbuch at Credit Suisse.

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