Citigroup Inc (NYSE:C) shares plunged 5.4% yesterday after the Federal Reserve rejected the company’s plans to increase share repurchase and raise dividend payments. The New York-based banking heavyweight experienced some unusually high options trading on Thursday, reports Analyst Ratings. Investors purchased 208,829 call options on Citigroup. That’s a 250% increase from the average volume of just 59,727 call options.
Bernstein lowers its price target on Citigroup
On Thursday, UBS analysts reiterated a Buy rating on Citigroup Inc (NYSE:C). But they lowered the price target from $63 to $60. Bernstein analysts downgraded the stock from Outperform to Market Perform in a research note Thursday. Bernstein also lowered its price target from $61 to $52. Goldman Sachs analysts have a Neutral rating on Citigroup.
Citigroup Inc (NYSE:C) had proposed to increase its dividend to 5 cents and share repurchase program to $6.4 billion. But the Federal Reserve rejected the proposal, saying that it will weaken the company’s capital cushions necessary to withstand a severe economic crisis. The Fed conducts a stress test every year to ensure that banks with $50 billion or more in assets have enough reserve capital and managerial strength to survive an ‘extreme scenario.’ That extreme scenario assumes that the stocks would plummet 50%, home prices go down to 2001 levels, and unemployment rate rises to 11.2%.
Citigroup’s capital plan contained a number of deficiencies
Citigroup Inc (NYSE:C) and other banks that received a red light for their planned stock buyback and dividend hike programs have 90 days to address the weaknesses pointed out by the Federal Reserve. Then they can resubmit their plans. For now, Citigroup is likely to continue with its current dividend of one cent a share and stock repurchase of $1.2 billion.
Notably, Citigroup Inc (NYSE:C) received one of the biggest bailout funds from the Federal Reserve during the 2008 crisis. The central bank infused $45 billion of cash in the bank, plus several billions of dollars in guarantees. The Fed said that Citigroup has made significant progress in its control practices and risk management since the financial crisis. But the bank’s capital plan had a number of deficiencies.
Citigroup Inc (NYSE:C) shares ticked up 0.27% to $47.58 at 10:34 AM EDT.