Citigroup asks to spend $1.2 billion on stock buybacks
Citigroup Inc said on Thursday it has asked the Federal Reserve for permission to spend $1.2 billion to buy back its own stock through next March but has not asked to raise its quarterly dividend.
The company's announcement came after the Federal Reserve released results of its stress tests of bank capital, which showed Citigroup scoring better than a year ago.
Analysts, on average, had expected Citigroup to raise its quarterly dividend after the stress test to 10 cents a share from the current 1 cent, according to Thomson Reuters I/B/E/S.
Many had also expected the company to ask to spend a nominal amount on buybacks after its bid last year to return capital was turned down.
Analyst Anthony Polini of brokerage Raymond James called Citi's buyback request "very conservative."
The Fed said in its instructions to banks for submitting capital plans that it expected them to be "conservative" in requests to increase dividends. Compared with spending for buybacks, regulators and bankers say, dividends are more of a commitment to keep making payouts in the future even if profits diminish.
At Citi's closing share price of $45.00 on Thursday, the $1.2 billion would buy back roughly 27 million shares, representing less than 1 percent of Citi's total outstanding shares.
Citigroup said it had scored itself marginally better than had the Fed under same hypothetical stress scenario on capital. Citigroup figured its Tier 1 common equity ratio would fall no lower than 8.4 percent, while the Fed put the figure at 8.3 percent. Five percent is the minimum under bank regulations.
The Federal Reserve has said it will announce on March 14 whether it has approved capital plans banks submitted in early January.
Under a stress test last year, the Federal Reserve said Citigroup's capital ratio would have fallen to 4.9 percent under the capital plan the company proposed and the regulator rejected.
At that time, some analysts had expected that the company would be allowed to spend as much as $5 billion of its capital.
The test failure was a major embarrassment for the company and contributed to friction between then Chief Executive Vikram Pandit and company directors, who in October pushed him out.
The test scores the Fed released on Thursday for 18 big banks showed Citigroup with perhaps the biggest improvements from a year ago. Citigroup's worst stress capital ratio was 2.4 percentage points better than a year earlier.
Citigroup entered this year's test with 1 percentage point more capital than a year earlier and its projected portfolio loss rate fell.
After last year's embarrassing failure, Pandit and other company officials vowed to talk more with the Fed about how it would be scored this year, particularly for potential losses on emerging markets assets, which are less well-known by regulators.
New CEO Mike Corbat said in January that the company was determined to win approval for its new capital plan and would be modest in this year's request to spend capital.
Citigroup, the third-biggest U.S. bank by assets, received multiple bailouts from the government during the financial crisis.
(Reporting by David Henry in New York; Editing by Leslie Adler and Steve Orlofsky)