All eyes have been on bank stocks this week as investors waited to hear of the results of the Fed’s stress test results. While much of the excitement centered on Bank of America Corp (NYSE:BAC) and its nicely padded capital cushion, Citigroup Inc. (NYSE:C) , a stress-test loser last year, surfaced as a clear winner, showing up fellow big banks B of A, JPMorgan Chase & Co. (NYSE:JPM), Goldman Sachs Group, Inc. (NYSE:GS), Morgan Stanley (NYSE: MS), and Wells Fargo & Co (NYSE:WFC) in the post-test, Tier 1 common capital category.
Playing it safe
Citigroup Inc. (NYSE:C) came out of the test — which required a minimum post-test 5% capital reserve — with an 8.3% capital ratio, higher than Wells’ 7%, B of A’s 6.8%, and JPMorgan Chase & Co. (NYSE:JPM)’s 6.3%. Both Goldman and Morgan Stanley emerged with ratios under 6%.
Despite going into the test with a Tier 1 ratio of 12.7% — the highest of any other bank — Citigroup Inc. (NYSE:C) choose to be conservative in its capital requests from the Fed. In an early release of this information, the bank revealed that it had asked for a $1.2 billion stock repurchase, and the maintenance of its current $0.01 per share quarterly dividend.
While some analysts expected Citi to increase its shareholder payout, it appears that new CEO Michael Corbat elected to play it safe. Along with SunTrust Banks, Inc. (NYSE: STI) and Fifth Third Bancorp (NASDAQ: FITB), Citigroup Inc. (NYSE:C) was stung last year by having its capital plan denied by the Fed. Although it submitted a revision that was eventually accepted, this particular incident has been considered key in the downfall of Vikram Pandit last fall.
What’s next for Citi?
Corbat has already announced where he wants to take Citigroup Inc. (NYSE:C), underlining the fact that the bank must make it or break it in over 20 markets within the next two years. He plans to improve return on assets from 0.6% in 2012 to at least 0.9% by 2015, as well as a minimum 10% return on tangible common equity by that year, as well.
Much like Bank of America’s Project New BAC, Corbat will trim the bank holding company by selling off much of its Citi Holdings, which has been a drag on the bottom line.
With such a plan in place, Citigroup Inc. (NYSE:C) should be on its way. Investors are rallying, having pushed the share price to a $45 closing yesterday — something the bank hasn’t seen in a while. Is Corbat the one that will turn Citi around? It’s looking good so far.
The article Citi Emerges Victorious originally appeared on Fool.com and is written by Amanda Alix.
Fool contributor Amanda Alix has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs and Wells Fargo. The Motley Fool owns shares of Bank of America, Citigroup, Fifth Third Bancorp, JPMorgan Chase, and Wells Fargo.
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