Citigroup, SunTrust capital plans pass Fed muster

Thu Aug 23, 2012 8:56pm IST

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Aug 23 (Reuters) - Citigroup Inc and SunTrust Banks Inc, two of the four U.S. banks that failed the Federal Reserve's stress test in March, say the regulator has not objected to their revised capital plans, which did not call for dividend increases or share buybacks.

The banks, when they resubmitted their plans in June, had said they did not ask for an additional return of capital to shareholders this year. They can ask for increases in the next round of stress testing, which begins in January.

The Fed stress tests, now an annual exercise, are designed to ensure 19 large bank holding companies would have sufficient capital to weather a hypothetical recession. As part of the tests, the banks submit proposals for raising dividends and buying back shares during the coming year, which need Fed backing.

Healthier banks such as Wells Fargo & Co and U.S. Bancorp have been able to increase returns to shareholders, while weaker banks have had to put those plans on hold. Citigroup and SunTrust issued statements about their resubmitted plans on Wednesday.

Ally Financial Inc, the auto lender that is 74 percent owned by the U.S. Treasury after a series of bailouts, in a statement Wednesday said it continues to have "active, frequent, and constructive discussions" with its regulators about the revised capital plan it submitted in June.

The lender is the middle of a major transformation. In May, its Residential Capital mortgage unit filed for bankruptcy, and it announced plans to sell its international operations. The actions are designed to strengthen the company's capital and liquidity and speed up repayment of the U.S. government, Ally said.

The lender said it continues to have a "strong financial profile," including a Tier 1 capital ratio of 13.7 percent of risk-weighted assets, despite taking a charge related to the ResCap bankruptcy.

The fourth bank holding company to fail the stress test, insurer MetLife Inc, has received an extension until Sept. 30 to submit a revised capital plan. MetLife is looking to shed its bank holding company status, having struck a deal to sell its online deposit-taking operations to General Electric Co..

Analysts have said MetLife was likely to fail another stress test even with a new capital plan, given that the tests were designed for banks and not insurers.

On Tuesday, Fifth Third Bancorp said the Fed did not object to a resubmitted capital plan that would allow it to raise its quarterly dividend by 2 cents to 10 cents per share and buy back additional shares. Fifth Third passed the stress test in March, but the Fed had opposed the dividend increase and limited the shares it could buy back, leading to the resubmitted plan.

The Federal Reserve declined to comment on the resubmitted capital plans.

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