Citi Tumbles Below $5/Share On A Split-Adjusted Basis After Failing Another Fed Stress Test

Tyler Durden's picture


Another year, another failure by Citigroup to i) pass the Fed's stress test and ii) be able to stop investing cash in such idiotic fundamental concepts as CapEx, and instead reward activist shareholders with increased dividends and buybacks. As the WSJ reports, Citigroup "failed to get Federal Reserve approval to reward investors with dividends and stock buybacks, a significant blow to Chief Executive Michael Corbat's effort to bolster the bank's reputation following a 2008 government rescue." Hardly surprising for a bank which effectively was wiped out in the crisis and which only survived thanks to the Fed-backed crammed-up, spinoff of billions of toxic assets into a bank bank, however certainly surprising for a bank that is supposed to be "fixed" five years into a "recovery." What's worse, the stock is now trading below the infamous $5 level on a pre-split adjustment level - the same split that was supposed to at least optically, give the impression that things at Citi are ok. Turns out optics is only half the answer.



Citi wan't the only one: the Fed rejected capital plans of five large banks and approved 25 as part of its annual "stress tests" measuring a firm's ability to survive a severe economic downturn. Companies must fare well on the test to win the regulator's approval for returning money to shareholders. Citigroup's rejection was based on deficiencies in the bank's capital-planning practices, including its ability to project revenue and losses under a stressful scenario and to adequately measure its exposures, according to the Fed.

The five institutions that didn't get approval—Citigroup, Zions Bancorp, and the U.S. units of HSBC Holdings PLC, Royal Bank of Scotland Group PLC and Banco Santander —must submit revised capital plans and must suspend any increased dividend payments unless they get the Fed's approval in writing. The foreign banks that didn't pass muster with the Fed are restricted from paying increased dividends to their parent firm. The five banks that failed to get their plans approved can continue to pay dividends at last year's level.

Others, those closer to the Fed of course, were more lucky:

The Fed approved the shareholder-reward plans for Bank of America Corp. BAC -0.06% and Goldman Sachs Group Inc. GS -0.92% only after the two banks adjusted their requests. Both of the banks initially fell below minimum capital levels in the Fed's 'severely adverse' stress testing scenario and resubmitted their plans last week.

And from Bloomberg, here is why specifically, the Fed just sent Citi's stock back under $5 on a split-adjusted basis:

  • Citigroup’s plan was objected to because “heightened supervisory expectations for the largest and most complex [bank holding companies] in all aspects of capital planning,” Federal Reserve said in its annual Comprehensive Capital Analysis and Review released today.
  • “While Citigroup has made considerable progress in improving its general risk-management and control practices over the past several years, its 2014 capital plan reflected a number of deficiencies in its capital planning practices, including in some areas that had been previously identified by supervisors as requiring attention, but for which there was not sufficient improvement.
  • "Practices with specific deficiencies included Citigroup’s ability to project  revenue and losses under a stressful scenario for material parts of the firm’s global operations, and its ability to develop scenarios for its internal stress testing that adequately reflect and stress its full range of  business activities and exposures.
  • "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 to warrant an objection to the capital plan  and require a resubmission.”

It is almost as if the Fed has already picked which bank will be this round's sacrificial Lehman when the moment comes to pull the plug on this particular bubble...

whocouldanode? credit, that's who!


And here is Citi's response:

The Federal Reserve Board (Fed) announced that it objected to the capital plan submitted by Citi as part of the 2014 Comprehensive Capital Analysis and Review (CCAR). The capital actions requested by Citi included a $6.4 billion common stock repurchase program through the first quarter of 2015 and an increase of Citi’s quarterly common stock dividend to $0.05.

Citi will be permitted to continue with its current capital actions through the first quarter of 2015. These include a $1.2 billion common stock repurchase program and a common stock dividend of $0.01 per share per quarter. These actions are subject to approval by Citi’s Board of Directors in the normal course.

Michael Corbat, Citi’s Chief Executive Officer, said: “Needless to say, we are deeply disappointed by the Fed’s decision regarding the additional capital actions we requested. The additional capital actions represented a modest level of capital return and still allowed Citi to exceed the required threshold on a quantitative basis.

“We will continue to work closely with the Fed to better understand their concerns so that we can bring our capital planning process in line with their expectations and meet their standards on a qualitative basis as well. We have not yet made a decision as to when we will resubmit our plan.

We clearly are being challenged to meet the highest standards in the CCAR process. Despite whatever shortcomings the Fed saw in our capital planning process, we have made tremendous progress over the past several years in enhancing our capital position and Citi remains one of the best-capitalized financial institutions in the world. We will continue to work incredibly hard to serve our clients and generate the returns our shareholders expect and deserve,” Mr. Corbat concluded.

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Wed, 03/26/2014 - 16:19 | 4595426 101 years and c...
101 years and counting's picture

just out of curiousity, what capex does a bank have?  mechanical hookers that carry blow?

Wed, 03/26/2014 - 16:28 | 4595480 pods
pods's picture

They all can't pass or people might see the whole process as a sham, and they have to ensure the process looks legit.


Wed, 03/26/2014 - 16:44 | 4595560 fonestar
fonestar's picture


Wed, 03/26/2014 - 18:45 | 4596110 Ness.
Ness.'s picture

You're wanted on the BTC IRS thread... STAT!!

Wed, 03/26/2014 - 19:25 | 4596307 Stackers
Stackers's picture

Lets not forget that Citi Group was the first TBTF bank and the merger between Citi and Travelers was what pushed through the "Financial Modernization Act" which effectiveluy repealed Glass-Stegel

Wed, 03/26/2014 - 17:44 | 4595816 Unknown User
Unknown User's picture

The Board fired Pandit because he could not pay investors dividends for two years.  Let's see how long Corbat lasts.

Wed, 03/26/2014 - 16:55 | 4595590 skwid vacuous
skwid vacuous's picture

almost forgot about the 10:1 reverse split, the hallmark of a great financial institution ... maybe they can bring back bob rubin for some more de-regulated shenanigans, great fun for all..

Wed, 03/26/2014 - 16:58 | 4595600 skwid vacuous
skwid vacuous's picture

no hookers are classified as a long term asset, part of "goodwill" 

Wed, 03/26/2014 - 17:05 | 4595639 Winston Churchill
Winston Churchill's picture

Hookers are a withering asset.

Executives are a self liquidating one, lately.

Wed, 03/26/2014 - 17:19 | 4595683 Deathrips
Deathrips's picture

Blowin Whistles, Paybacks a Bitch.


What role will CITI play this time?


Bear Sterns, MFG, Solomon Smith Barney.....who?



Wed, 03/26/2014 - 20:40 | 4596599 yourfather
yourfather's picture

Branch Network and fixed assets. 

I dunno if IT would be lumped in there but for some of these places IT spend is the same as the GDP of Fiji for one year  

Wed, 03/26/2014 - 16:20 | 4595429 Iam Yue2
Iam Yue2's picture

99% chance that Buiter will be fired. #Buitexit

Wed, 03/26/2014 - 16:31 | 4595498 max2205
max2205's picture

I am pretty sure that if they are not well under freaking ridiculous ZIRP, then they will never be off the venterler

Wed, 03/26/2014 - 16:22 | 4595443 gianakt
gianakt's picture

Citi has a enormous long position in WTI crude tread carefully, as they may have to liquidate.

Wed, 03/26/2014 - 16:42 | 4595548 walküre
walküre's picture

hopefully they will :)

Wed, 03/26/2014 - 16:24 | 4595454 Donlast
Donlast's picture

The only stress one would wish Citi to enjoy is bankruptcy.  Its clogging up the system.

Wed, 03/26/2014 - 16:24 | 4595458 NoDebt
NoDebt's picture

All the banks lining up to submit their capital spending plans to the Fed for approval.  Would you have imagined that 10 years ago?

Hi, welcome to the methodone clinic, here's your daily dose.


Wed, 03/26/2014 - 16:26 | 4595461 Emergency Ward
Emergency Ward's picture

1:10 reverse split in 2011.  Ha Ha Ha......see, our shares are up to $50, we deserve a bonus.

Wed, 03/26/2014 - 16:41 | 4595543 walküre
walküre's picture

Saying CITI fell under $5/share makes better headline. It's a magical number for pension funds who aren't allowed to hold stocks valued under $5/share. Not sure if the split is considered after 3 years. Probably not. CITI stock should be ok for a bit longer.

Wed, 03/26/2014 - 16:26 | 4595468 buzzsaw99
buzzsaw99's picture

and jpm passed with flying colors. :shocker:

Wed, 03/26/2014 - 17:09 | 4595652 Soul Glow
Soul Glow's picture

Gotta be the cufflinks.

Wed, 03/26/2014 - 16:30 | 4595488 Kaiser Sousa
Kaiser Sousa's picture


Dow 18k...

Wed, 03/26/2014 - 16:31 | 4595499 Motorhead
Motorhead's picture

Kudos (again) to Meredith Whitney.

Wed, 03/26/2014 - 16:39 | 4595532 Soul Glow
Soul Glow's picture

Really?  Last I heard she was uber-bullish on the financial sector.

Wed, 03/26/2014 - 16:37 | 4595524 Soul Glow
Soul Glow's picture

Who owns C anyway?  A bunch of dumbasses, that's who.

Wed, 03/26/2014 - 16:38 | 4595529 Motorhead
Motorhead's picture

LOL, yeah, no shit!

Wed, 03/26/2014 - 17:11 | 4595650 Rainman
Rainman's picture

Medina-Mora is the biggest insider shareholder. He recently lost nearly a quarter billion for C in the Banamex fraud. Got a wrist-slap cut in his bonus as punishment.

Wed, 03/26/2014 - 18:01 | 4595874 1stepcloser
1stepcloser's picture

They need to ticker it to see you next tuesday or tity..  either works for me

Wed, 03/26/2014 - 16:43 | 4595554 FieldingMellish
FieldingMellish's picture

I am surprised there was not a 15:59 selloff by someone in-the-know. Very surprised, actually.

Wed, 03/26/2014 - 16:56 | 4595599 ebworthen
ebworthen's picture

They are all insolvent, but if Treasuries continue to flatten they may well need that sacrificial Lehman.

I'd wager though, that Citi would be bailed out and forced to split operations up.

Nothing in New York will be allowed to fail, just shuffled.

WaMu!  Wherefore art thou?  WaMu!?!?

Wed, 03/26/2014 - 17:04 | 4595630 thelibcentury
thelibcentury's picture

Does this mean I should load up a Citi-card to buy Au?

Wed, 03/26/2014 - 17:44 | 4595638 Bokkenrijder
Bokkenrijder's picture

Oh dear, will Alwaleed Bin Talal now also have to sell his private Boeing 747, after he already had to sell his private Airbus A380 "Flying Palace?"

Wed, 03/26/2014 - 17:09 | 4595644 ebworthen
ebworthen's picture

Oh Lord, Dick Bovine on CNBC squeezing out more cow pies, pushing Margin Stanley and Bunk of America.

"These banks are in terrific condition, they haven't been in better shape since 1938."  Such effluviance!

Citi should be at $1.

Wed, 03/26/2014 - 17:07 | 4595645 CashCowEquity
CashCowEquity's picture

DO i have to still pay my Citibank Credit Cards?

Wed, 03/26/2014 - 17:16 | 4595680 pitz
pitz's picture

As long as the US banking system continues to de-capitalize itself through employee bonuses and banker compensation that is in excess of market rates (ie: bankers earning $50k/year, which is more reflective of the clearing price for their skills), there will be trouble. 

Wed, 03/26/2014 - 17:30 | 4595753 BabylonDeer
BabylonDeer's picture

So.... 2009 C rebate freemoney madness again? :)

Wed, 03/26/2014 - 17:33 | 4595767 Yen Cross
Yen Cross's picture

    Shittybank fails...It couldn't happen to a nicer group of banksters.

Wed, 03/26/2014 - 17:51 | 4595844 Spungo
Spungo's picture

It's interesting to look at how the market sees the various banks.
Bank of America - still 50% lower than 2007 
Wells Fargo - about 50% higher than 2007
Citigroup - down 90% from 2007
JP Morgan Chase - roughly the same as 2007

The market seems to think Citi is a horrible bank. The stock price never recovered. 

Wed, 03/26/2014 - 20:42 | 4596606 Xrated
Xrated's picture

My guess:

Wells has (had?) 60% of mortgage servicing Market $$$?

BOA has 5%.. after selling bad countrywide loans to the Treasury (Blackrock)

Chase has 3% and they are flat.

How can Wells do so good knowing they had the same percentage of shitty loans as Countrywide? Did Blackrock get all of Wells non performings too?

If so, the amerikan tax payers  are getting a real butt fucking, wish I was smart enough to buy Wells and Apple at $30 in 2008

Wed, 03/26/2014 - 17:56 | 4595865 1stepcloser
1stepcloser's picture

Quick Raise the Marks, on the Mark to Magic assets

Wed, 03/26/2014 - 18:18 | 4595976 rsnoble
rsnoble's picture

It's still in a flat line range it's been in last couple years so nothing too eye opening imo.

And now that everything is officially an illusion we have a lot of room before 0.  LOL.

Of course none of that changes my mind that it's one huge sack of shit.  I wonder what the magic number is before the prop desks ram it up?  Kinda like when BAC used to flirt with breaking $5 and all hell would break loose at the FED everytime it got to that level.  More DRUGS!!!!!!!!!!!!!!!!!

Wed, 03/26/2014 - 19:59 | 4596448 MrTouchdown
MrTouchdown's picture

I had no idea that $47.66 was the same as $5. If that wasn't true, this article would be lacking in credibility!

Wed, 03/26/2014 - 20:50 | 4596641 Xrated
Xrated's picture

Gerald  J Ford sold his California Banks and mortgage companies to Citi in 2006 for $7 billion. They were all free and clear banks given to him in the 80's from the savings and loan crisis, courtesy of the fdic, Jerry paid nothing down because of his demorat friend Jim Wright from SMU.

Isn't govt great? Imagine how Blackrock will fare with the FED guarantees behind them?

Wed, 03/26/2014 - 20:32 | 4596559 Xrated
Xrated's picture

Going back along time ago I bought Citi for $1.50, sold at $3, bought prefered for $20, got a 5 for one split, made another mini fortune, bought common at 3 and got another 5 for 1 split, sold at $30 and made another boat load of money.

Question is? 6 years later,is this worth the gamble? My BOA stock isup 20% in a year and is 66% cheaper


***did I get a 5/1 or 10/1 split in 2008? I am too lazy to crawl up into the attic and look for mytax return box

Thu, 03/27/2014 - 14:54 | 4599692 I Write Code
I Write Code's picture

There was a time, decades ago, when Citi was the real deal.

By 2008 they were the real scum.

The 2007 BofA was basically dull but honest up to the point they "bought" Merrill and Countrywide.  Now I dunno.  BofA has recovered about 50% since 2008 thanks to ZIRP, but I'm afraid Merrill is going to be a bad influence on them.  I'd look elsewhere to invest.  Time to buy BofA was either at the bottom at 3, or around 7 just after Buffett bought in. Gotta hand it to Buffett, he turned some coin on this one.

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