On Wednesday, the U.S. Federal Reserve rejected Citigroup’s (C) proposed dividend and stock buyback plans after the bank failed its so-called “stress test.” C stock sank more than 4% in Thursday morning trading.
C stock declined after the Fed questioned the big bank’s “ability to project revenue and losses under a stressful scenario for material parts of the firm’s global operations.” The Fed’s stress tests are designed to assess a financial institution’s capacity to withstand a major global downturn or sharp U.S. recession. The central bank also criticized the “overall reliability of Citigroup’s capital planning process,” the New York Times notes.
Sources told the Times that Citigroup executives were surprised by the Fed’s decision and that the bank held a board meeting hours after the results were made public. When Citigroup failed its stress test in 2012, the results helped unseat CEO Vikram Pandit. The bank passed last year’s stress test under the leadership of new CEO Michael Corbat.
Citgroup was the only major Wall Street bank to fail this year’s stress test. Among the other big banks that fell short of the Fed’s expectations were the U.S. units of the Royal Bank of Scotland (RBS), HSBC (HSBC) and Santander. Zions Bancorporation (ZION) also failed the stress test.
C stock closed at $50.16 on Wednesday. Over the past year, C stock has gained about 12%.