Citi shares drop on poor showing in Fed’s stress tests
There’s nothing like a slap in the face from the Federal Reserve to rattle a stock price. Just ask investors in Citigroup Inc.
Citi shares dropped 3.4% Wednesday after its poor showing in the Fed’s stress tests for big banks whose failures might blow up the financial system.
For the most part, the Fed report amounted to a stamp of approval for the banking industry’s recovery from a near-meltdown. Many of the giants — including JPMorgan Chase & Co., US Bancorp and Wells Fargo & Co. — were sound enough to return more of their profit to shareholders, the Fed said in its bank stress test report.
Citi, the Fed said, was not quite there yet.
Analysts said Citi’s executives had led investors to expect that the company would reward them by raising the dividend, buying back some shares or both. But those investor hopes were dashed when the Fed said Citi could pass the stress test only by retaining more profit to beef up defenses against a sharp economic downturn.
JPMorgan analysts downgraded Citi to neutral, saying the news “is surprising and hurts management’s credibility.”
Rochdale Securities analyst Dick Bove, a bull on bank stocks, said the tests results proved that “this industry for the last year has been doing extraordinarily well.”
But of Citi, Bove said in an email: “The company will be very embarrassed.”
Citi found defenders among Nomura Securities analysts, who described the stock as undervalued and said a return of capital to shareholders had only been delayed until later this year or next year.
In trading Wednesday, Citi shares fell $1.24 to $35.21.
Meanwhile, many other banks did well in wake of the report. Long-suffering Bank of America didn’t raise its dividend, but its shares still rose 4% Wednesday on investor relief at its passing grade.
Also Wednesday, JPMorgan was up 19 cents to $43.58, Wells Fargo was up 4 cents at $33.37 and Bank of America was up 35 cents to $8.84.
The KBW Bank Index rose by 62 cents, or 1.3%, to $48.11.
