Fed blocks Citigroup from raising dividends

WASHINGTON – Citigroup cannot raise its dividend or buy back its own stock because it needs better plans to cope with a severe recession, the Federal Reserve ruled Wednesday, a disappointing reversal for one of the nation’s largest banks.

The Fed also rejected the capital plans of four other big banks as part of its so-called “stress tests,” an annual check-up of the nation’s 30 biggest financial institutions.

The Fed said that the capital plans of Citigroup fell short in some areas, including its ability to forecast revenues and losses in parts of its global operations, should they come under economic stress. Citi had asked the Fed’s permission to buy back $6.4 billion in shares through the first quarter of next year, and to raise its dividend to 5 cents each quarter.

Citi CEO Michael Corbat said the company was “deeply disappointed” by the Fed decision. The dividend and buyback would have been a “modest level of capital” for shareholders, and Citi still would have exceeded requirements for its financial health, he said in a written statement.

As with Citigroup, the Fed said it found deficiencies in the capital plans of HSBC North America Holdings, RBS Citizens Financial Group, Santander Holdings USA and Zions Bancorp. The central bank, however, approved requests outright from the other 25 tested banks, which included JPMorgan Chase, Wells Fargo and Morgan Stanley, in addition to Bank of America and Goldman Sachs.

Citigroup was blocked from raising its dividend in 2012, too, after failing its stress test that year. Before the financial crisis, its dividend peaked at $5.40 per quarter in 2007. After eliminating its dividend altogether in 2009, it reinstated a payout in June 2011 at a token penny per quarter, where it remains now.