Citigroup Exceeds Fed Minimum Capital Level Under Stress Scenario
June 23 2016 - 5:00PM
Dow Jones News
By Christina Rexrode
Citigroup Inc. has the capital to keep lending in a severe
economic downturn, the Federal Reserve calculated Thursday in the
first stage of its annual stress tests.
At the low point of a hypothetical recession, Citigroup's common
equity Tier 1 ratio, which is a measure of high-quality capital as
a share of risk-weighted assets, was 9.2%, exceeding the 4.5% level
the Fed views as a minimum, the central bank estimated.
Citigroup's Tier 1 leverage ratio, which measures high-quality
capital as a share of all assets, was 6.9%, exceeding a 4%
minimum.
Both ratios were notably higher than last year, when the Fed
calculated that Citigroup would have a common equity Tier 1 ratio
of 6.8% and a Tier 1 leverage ratio of 4.6% at the low point of a
recession.
Citigroup's projected pre-provision revenue jumped to $43.7
billion, up 50% from last year's exam. Its projected trading and
counterparty losses fell 9%, to $16.8 billion.
The stress tests simulate a worldwide recession. The results
were under the Fed's "severely adverse" scenario of financial
stress, which this year includes a 10% U.S. unemployment rate,
significant losses in corporate and commercial real estate lending
portfolios, and negative rates on short-term U.S. Treasury
securities.
The results will factor into the Fed's decision next week about
whether to approve the bank's plan for rewarding shareholders with
dividends or potential share buybacks. Banks whose capital ratios
dropped close to minimum levels may choose to scale back their
dividend or buyback plans before the Fed announces its final
decision Wednesday. That day the banks can choose to announce
whether they are raising their dividends or buying back more
shares, important for enhancing shareholder returns.
Citigroup failed the test twice, in 2012 and 2014, in part
because of regulators' concerns about the bank's ability assess
potential risk across its global operations. Last year, the bank
passed the exam and the Fed gave it permission to raise its
dividend for the first time since the financial crisis.
Write to Christina Rexrode at christina.rexrode@wsj.com
(END) Dow Jones Newswires
June 23, 2016 16:45 ET (20:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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