March 14, 2012 08:40 AM
By Edward Skyler, Executive Vice President, Global Public Affairs
There has been a great deal of media coverage about the results of the Federal Reserve stress tests that were released yesterday. It is important to make clear that Citi did not 'fail' the stress test. As the report from the Federal Reserve makes clear, Citi has the capital to withstand the 'severe stress scenario' simulated by the Fed.
Our minimum capital ratio based on that test was 5.9%, well above the 5% minimum established by the Fed. It is only after our proposed return of additional capital was factored in that the Federal Reserve calculated our minimum capital ratio to be 4.9%. Simply put, the Federal Reserve's objection to our capital plan does not equate with 'failing' the stress test. As of the end of 2011, Citi had a Tier One Common ratio of 11.8% and remains one of the best capitalized banks in the world.
Citi's entire statement is below.
Citi Statement on Comprehensive Capital Analysis and Review Decision
"The Federal Reserve today released the results of its hypothetical severe stress test scenario. The results showed that Citi exceeded the stress test requirements without the capital actions Citi proposed. However, the Federal Reserve advised Citi that it objected to Citi's proposed return of capital to shareholders. In light of the Federal Reserve's actions, Citi will submit a revised Capital Plan to the Federal Reserve later this year, as required by the applicable regulations.
"The Federal Reserve advised Citi that it has no objection to our continuing the existing dividend levels on our preferred stock and our common stock, and we plan to do so, subject to approval by the Board of Directors each quarter. The Federal Reserve also advised that it has no objection to Citi redeeming certain series of outstanding trust preferred securities, as Citi proposed in its Capital Plan.
"We plan to engage further with the Federal Reserve to understand their new stress loss models. We strongly encourage the public release of these models and the associated benchmarks and assumptions. We believe greater transparency in this process will best serve all banking institutions and their shareholders as well as the international regulatory community and market participants, and will encourage a level playing field globally.
"Citi remains among the best capitalized large banks in the world, with a Tier 1 Common capital ratio of 11.8% as of December 31, 2011. The Federal Reserve's announcement today says that Citi would have a 5.9% Tier 1 Common capital ratio in the severe stress scenario without the proposed capital actions. Based on data as of September 30, 2011, according to the Federal Reserve, the proposed capital actions would have resulted in a Tier 1 Common ratio of 4.9% in the severe stress scenario. Citi has had eight straight quarters of positive net income and has reduced Citi Holdings to approximately 12% of total assets."