Citi’s Vikram Pandit’s Letter To Employees Regarding the Stress Test

Via – WSJ

Dear Colleagues:

Having assured the safety and soundness of Citi, one of our most important goals is to return capital to our shareholders. As you know, last year we restored our dividend at the nominal rate of $0.01 per share. Our hope was that this move would be a prelude to greater capital returns in the near future. That goal has not changed.

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However, we learned today that based on its hypothetical severe stress scenario, the Federal Reserve Bank did not approve the plan we submitted to return additional capital to our common shareholders. We know that our capital strength is among the highest in the industry—our Tier One Common capital ratio as of the end of last year stands at 11.8%. It’s important to note that, without our proposed capital actions, we passed the Federal Reserve’s stress test scenario. Our capital ratio based on that test was 5.9%—well above the minimum of 5%. But when our plan to return capital was factored in, the Federal Reserve calculated our capital ratio at 4.9% under the terms of the stress test. To show you how these results compare to others in our industry, I have included a table that lists the results for other banks.

The full Federal Reserve report can be found here.

We still believe that our company has the capacity to return more capital to shareholders. We will work with the Federal Reserve to formulate a plan that returns meaningful capital while satisfying our regulators. We will also encourage the Federal Reserve to make public their stress test models so that other banks and their shareholders, as well as international regulators and market participants, can gain deeper insight into this process and make better informed assessments of American banks. Such a step is essential to creating a level playing field for the world’s financial institutions.

Today’s news is disappointing, but we remain very optimistic about the long term. For all of us, our main task remains helping our clients and bringing the full capabilities of Citi to bear on their behalf. You have been doing that extraordinarily well and our results show that.

Citi has travelled an enormous distance in a few short years and we know—thanks to your talent, ingenuity and hard work—that our best years are yet to come.

– Vikram

Matthias Rieker contributed to this post.