The latest release of the Fed’s bank stress test results showed that Citigroup, along with four other US banks failed because of poor risk management practices. “Needless to say, we are deeply disappointed by the Fed’s decision regarding the additional capital actions we requested,” said Citi CEO Michael Corbat.
Citigroup’s share prices fell by 5.16% for the New York trading session, as investors rushed to liquidate their holdings. The stock was down by 4% in the after hours trading sessions. Bear in mind that Citigroup also failed the stress test results back in 2012, which then led to the ousting of then CEO Vikram Pandit.
Citigroup Stock Performance
Along with Citigroup, Bank of America and Goldman Sachs were also included in the list. However, these institutions were requested to simply pare back their initial capital plans and submit revisions. Other banks that failed the test are the US arms of HSBC Holdings, the Royal Bank of Scotland, Santander and Zion.
Shares of Citigroup might keep falling in today’s trading sessions, as more traders could close out their long positions. After all, investors wouldn’t want to be holding on to a financial stock which might see further declines. Bear in mind that the Fed is conducting these tests to see which institutions might fail if another financial crisis takes place.
However, some analysts were surprised to see Citi in the list since the bank’s capital holdings were larger than the Fed’s requirements. The Fed has a required 5% projected capital level while Citi has 6.5%. Take note though that Citigroup reported a $400 million loss in its Banamex unit, sparking concerns about the financial controls being implemented by the institution.
Shares in today’s early Asian trading are getting a wind of these bank stress test results, spurring a bit of risk aversion in trading. This could carry on in the latter trading sessions unless a market catalyst brings risk appetite back to the table.
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