Citigroup Inc. (C), the third-biggest U.S. bank, may have to drop plans to return capital to shareholders after failing one part of the Federal Reserve’s stress test, Credit Suisse Group AG analyst Moshe Orenbuch said.
Citigroup could instead reduce the size of the capital plan, which may include dividends and share buybacks, Orenbuch said today in an interview on Bloomberg Television. He had previously predicted the lender would return about $2 billion, including about $1.5 billion of share buybacks and $500 million of dividends, he said in an e-mail.
Capital at the New York-based bank would fall short of the Fed’s minimum requirement if Pandit enacted his plan during a severe economic slump, according to the central bank’s data. The Fed objected to the proposal after projected loan losses were the second-worst of 19 banks tested, the data show.
“It’s going to be smaller or zero as they resubmit,” said Orenbuch, who has an “outperform” rating on Citigroup shares. “The key question is can they work with the Fed to get them to understand the actual loss characteristics of those assets.”
Pandit will submit a new plan that will return “meaningful capital” to shareholders, he said this week after the Fed released the results. The Fed should make public the models it used in the tests, Pandit said.
Shannon Bell, a spokeswoman for Citigroup, declined to comment on Orenbuch’s remarks.
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