Citigroup Inc. (C)’s Surprising Post Stress-Test Move

Page 1 of 2

Last Thursday, the Federal Reserve announced the results from part one of its Comprehensive Capital Analysis and Review, known informally as “stress tests.” For Citigroup Inc. (NYSE:C) investors there were two surprises: one sure to please, and one almost surely not to.

Surprise #1: Great stress-test performance
But just in case you missed the breaking Citigroup Inc. (NYSE:C) stress-test news from last week, here’s a quick recap:

Source: Dodd-Frank Act Stress Test 2013: Supervisory Stress Test Methodology and Results.

In the Fed’s simulated, severe economic downturn, Citigroup Inc. (NYSE:C) — which had an excellent capital position of 12.7% going into the test — would lose 4.4% off its Tier 1 common capital ratio, still leaving it at 8.3%: strong in absolute terms, as well as in relation to its peers.

The median Tier 1 common capital ratio performance for the banks this year was 7.7%. The minimum regulatory standard the Fed requires is 5%. A stressed 8.3% common ratio easily surpasses the Fed’s minimum, and comfortably surpasses the average. There’s no arguing Citi’s performance on the test itself.

Nor is there much arguing to be done regarding how well Citigroup Inc. (NYSE:C) did up against its big-banking peers: The superbank easily outperformed many of them. JPMorgan Chase & Co. (NYSE:JPM)‘s stressed common ratio was only 6.3% versus Citi’s 8.3%. The normally indefatigable Wells Fargo & Co (NYSE:WFC) only emerged with a 7% common ratio , and Bank of America Corp (NYSE:BAC) came in with a 6.8% stressed common ratio. Well done all around, Citigroup Inc. (NYSE:C).

Surprise #2: No dividend for you
Citigroup Inc. (NYSE:C) has already announced it will not seek a post stress-test dividend increase from the Fed. This will come as an unexpected surprise to the bank’s investors; given how well it did in the 2013 CCAR, it could almost certainly have gotten one (versus last year, when Citigroup Inc. (NYSE:C) failed its stress test and was unable to raise its dividend).

The Fed had recently indicated it wouldn’t look kindly on any dividend increase that would cause a bank to go beyond a 30% payout ratio. But Citi’s is currently 2%, so from the Fed’s perspective, there’s obviously excessive room for maneuver there. To the best of my knowledge, CEO Michael Corbat hasn’t commented on why his bank isn’t seeking a dividend increase, but here’s my best guess.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

The 10 Longest Wars of All Time

The 13 Worst Looking Foods that Taste Great

The 6 Most Gruesome Injuries Suffered During a Sports Match

The 20 Biggest Contracts in MLB History

The 7 Worst Blown Calls in Sports History

7 Free Ways to Advertise Your Business Online

The 18 Best R&B Songs of the 90’s

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!