Citigroup Inc.’s capital plan was among five that failed Federal Reserve stress tests, while Bank of America Corp. won approval for its first dividend increase since the financial crisis.
Lenders announced more than $60 billion of dividends and stock buybacks after the Fed approved capital plans for 25 of the 30 banks in its annual exam. Citigroup, as well as U.S. units of Royal Bank of Scotland Group Plc, HSBC Holdings Plc and Banco Santander SA, failed because of concerns about the quality of their processes, the central bank said yesterday in a statement. Zions Bancorporation failed after its capital fell below Fed minimums in a simulation of a severe economic slump.
The results show lenders may still face obstacles to boosting dividends and buybacks even as regulators say the firms have doubled their capital since the first public stress test in 2009. The Fed is increasing scrutiny of the industry’s controls and planning processes as concerns about capital levels wane.
The central bank found defects in Citigroup’s planning practices that included areas the Fed flagged before. The regulator expressed concern with the New York-based company’s ability to project losses in “material parts of its global operations” and to reflect all business exposures in its internal stress test.
“Taken in isolation, each of the deficiencies would not have been deemed critical enough to warrant an objection, but when viewed together, they raise sufficient concerns regarding the overall reliability of Citigroup’s capital planning process,” the Fed said of the third-largest U.S. bank.
Full article: Citigroup Fails Fed’s Stress Test as BofA Gets Dividend Boost (Bloomberg)