Thursday, March 15, 2012

Citigroup failure in Fed test raises questions

Citigroup failure in Fed test raises questions
By David Henry
Wed Mar 14, 2012 6:43pm EDT

(Reuters) - Citigroup Inc (C.N) on Wednesday stood by its pledge to reward shareholders, as Wall Street sought to understand why the bank failed to win approval from regulators to increase its dividend or buy back stock.

Citigroup said late on Tuesday the Federal Reserve turned down its plan to return capital to shareholders, following the latest stress test of top U.S. banks.

In the weeks leading up to the announcement, Chief Executive Officer Vikram Pandit had convinced analysts the bank had rebuilt its balance sheet to the point it had more capital than needed to weather a severe economic downturn. By late last week, several analysts had forecast the bank would win permission to raise its quarterly dividend from a penny a share to 10 cents.

Surprised investors sent Citigroup shares down 3.4 percent on Wednesday, while the KBW Index of bank stocks gained 1.3 percent. The stock rose more than 30 percent this year.

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