Boston, MA 03/21/2014 (wallstreetpr) – In what should come as good news for investors, customers as well as financial authorities, 29 out of 30 banks and all four major financial institutions in the U.S. passed the Dodd-Frank Stress Tests administered by the Federal Reserve. All big banks — including Citigroup Inc (NYSE:C) — have adequate capital to withstand a severe economic shock including a deep recession.
This indicates that these banking institutions won’t need taxpayer-funded bailouts like they did in 2008. The Fed feels confident that the major banking institutions in the U.S. are well prepared to meet their obligations to their customers (households as well as businesses) as well as continue to lend to them in a hypothetical scenario of an extremely severe economic downturn. According to the Fed, this result reflects a general improvement in their capital positions since the 2008 financial meltdown.
The next test for the banks is on March 26 when the Fed comes out with results from the Comprehensive Capital Analysis & Review (CCAR).
Citigroup’s Tier 1 common ratio was put at 7% by the Fed, which is higher than the required minimum threshold of 5%. This was below the average of 8.2% for the industry. Citigroup has however challenged the Fed’s estimate saying that it believes its ratio should be 10%.
Other good news from Citigroup Inc (NYSE:C) has included significant earnings per share improvement in the latest quarter, net income increase of 105.3% compared to same quarter and slight improvement in the return on equity in comparison to the same quarter of the previous year.
Shares Trading Lower
The market’s expectations include larger dividends and/or share buyback by both Citigroup and Bank of America Corp (NYSE:BAC).
While both Citigroup Inc (NYSE:C) and Bank of America have traded in negative territory today, JP Morgan Chase & Co. (NYSE:JPM) and Wells Fargo & Co (NYSE:WFC) have been in positive territory.