Factors Contributed to the Failure of Citigroup Inc (NYSE:C) Annual Stress Test

by Liza Smith | Monday, Mar 31, 2014 | 4209 views

Boston, MA, 03/31/2014  (usastockreports)- The Citigroup Inc (NYSE:C) annual plan has been rejected by the US Federal Reserve after it failed to pass the annual stress test. The city has requested that by the first quarter of 2015 it will repurchase $6.4 million common stock and $0.05 increase in the quarterly stock dividend to its shareholders.

Disappointment to the Company and Its Shareholders

The News came as a jolt to company management and its shareholders. Now it will continue with its current capital plan which includes repurchase of $1.2 billion common stock and $0.01 dividend/share for the quarter to its shareholder. The plan is subjected to the approval of its Board of Directors. The company CEO said they are disappointed by the decision and they will continue to work in tandem with the Fed so the concerns raised by them would be resolved and their Capital planning process can resume treading in its decided path. Due to this rejection the Bank was downgraded by the two firms and hurt its share price today,

Reasons for Failure:

The Fed said it has number of issues regarding planning practices being followed by the company. It said though the Bank has made considerable growth in its normal risk management and control methods. Its 2014 plan reflects a number of loopholes need to be covered. Fed has previously pointed out the Bank regarding these but there was not enough improvement shown by the bank in these areas. The Fed was not convinced by the supervisory control of the Ban. It wanted the Bank to make further progress in study and handling the risks management in its numerous global branches and during the period of stress, its projection capability.

What Lies Ahead

Citigroup Inc (NYSE:C) can submit its plan again but its need to strengthen the weak points which was raised by the Fed. This will also help the company in handling the crisis when it comes. So the growth pattern is not hampered as was in the case of Fraud in its Mexican unit when it has to curtail its profit.

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