Citigroup Fails Fed Stress Test

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March 27 (Bloomberg) -- Citigroup’s capital plan was among five that failed Federal Reserve stress tests. Mediobanca Bank Analyst Christopher Wheeler speaks on Bloomberg Television’s “Bloomberg Surveillance.” (Source: Bloomberg)

And joins us on the phone this morning from london.

There are so many directions we can take this in, but the overarching picture is more than five years after the financial crisis, these stress tests are supposed to be perfunctory yet five big banks other capital plans rejected, couple of them are submitted and were proved later on.

Is the federal bidding the goal post?

Yes, i think they probably are.

What we said all along, and we see this in europe as well, banks are being pushed to build up their capital to much higher levels of leverage to lower levels than we sell precrisis.

I think once the relators got them to those levels, saying anything above what happens to be, you can be paid baxter shareholders.

The view is, let's just hold on a little bit and be a little conservative.

Let's go deeper into citigroup.

What is it about their structure or processes that makes it more vulnerable to filling the stress test?

I think it is the sheer scale and geographic and business -- obviously, as you said, he wasn't the only one.

Three european banks also were told the procedures were not adequate and they needed to go back and rework them.

We saw this last year with goldman sachs and j.p. morgan.

Obviously, we are further down the line and everybody is hoping people are used to this process.

Chris, citi had to invest a number of its japanese assets several years ago.

What comes next?

It is difficult to say.

I think they're still running down the non-core business.

I don't think there's anything that sticks out that they said they don't want, but i think there'll be a reassessment as racing in so many banks across the globe who thought they got to the shape they wanted to be in.

A lot of them are being hurt, citi included, are the much lower making investment.

-- banking investment.

I think this goes to the heart --larry kantor with us as well.

Larry, you are knee deep in this.

Is this -- is his solution or rbs or hsbc, they just have to go hire more people to help with these processes?

Just to be clear, what they mean by internal processes, from what i can see, the banks have some leeway here in terms of how they conduct the test.

The fed set certain parameters and says extreme stresses may be 11.5% to plummet rate, the stock number goes down a certain percent, but the bank itself has to said other parameters of what extreme stress means.

Then they have to do the calculations.

How this affects capital and pnl and so forth.

Then the fed checks, how do they do this?

I like that idea.

Chris wheeler, is this a manpower issue or a structural behavioral issue?

Today justine more bodies?

I think part of it is needing more bodies.

But also, it is a matter of actually saying, we need to be more efficient in the way we run these processes.

This is no longer just a regulator popping in and reviewing our books, but a much more detailed process and we have to be absolutely on top of it so we can prove what we're showing them is a genuine and accurate view of what could occur under these conditions.

To larry kantor's point about the fed effectively saying to the bank, we don't necessarily agree with your methodology, what does citi need to do to change its methodology in order to get the fed to say, ok, now you get our vote?

One analyst overnight made the point, obviously, the report between citibank and the regulator is not as good as it should be.

That is part of the process.

The need to sit down with him and say, what is it you have a problem with and what should we be doing?

Then they need to review and say, now we will put in place procedures that reflects what you want to see or what you feel is appropriate for a bank of our scale.

It is enormous bank and quite

This text has been automatically generated. It may not be 100% accurate.


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