Tags: Fed | Loss | Citigroup | Stress

Fed Corrects Loss Estimates for Citigroup in Stress Tests

Monday, 19 March 2012 12:42 PM

The Federal Reserve corrected errors in loan-loss estimates for financial firms including Citigroup Inc. in a stress test of capital during a hypothetical economic slump.

The revised calculations don’t affect capital ratios that determined whether the banks passed or failed, the Fed said in a March 16 statement. In the test of Citigroup, an estimate for losses on first-lien mortgages in a stressed scenario was decreased by $400 million to $8.9 billion, while the estimate for losses on “other loans” was increased by the same amount to $4.8 billion.

The Fed required financial firms with more than $50 billion in assets to submit capital plans that would demonstrate whether the industry can withstand another crisis. U.S. banks deemed strong enough, including JPMorgan Chase & Co., were cleared to raise dividends and repurchase shares.

Citigroup was among four firms whose plans the Fed rejected March 13 after the central bank estimated that, under the New York-based lender’s proposal, it might fall short of requirements in a stressed scenario.

The Fed also changed calculations for Charlotte, North Carolina-based Bank of America Corp., Ally Financial Inc., Wells Fargo & Co. and MetLife Inc.

The central bank, in some cases, reduced loss estimates for first- and second-lien mortgages, and then specified that the numbers it provided were for domestic loans only. Projected losses on Citigroup’s home equity lines of credit, using that methodology, declined $100 million to $5.9 billion.

International Real Estate

Losses on other loans, which include international real estate, increased $100 million to $1.8 billion for Bank of America. The loss rate on first-lien mortgages for Detroit-based Ally, the largest U.S. auto lender, dropped to 6 percent from 6.1 percent.

The loss rate on other loans in a stressed scenario declined to 1.9 percent from 2.1 percent at Bank of America; 2.5 percent from 3 percent at Ally; 2.8 percent from 3.8 percent at Citigroup; 1.6 percent from 2 percent at MetLife; and 2.1 percent from 2.2 percent at San Francisco-based Wells Fargo.

The rate of total loan losses at New York-based MetLife, the biggest U.S. life insurer, fell to 1.4 percent from 1.6 percent.

Ally, MetLife and Atlanta-based SunTrust Banks Inc. joined Citigroup as the only firms out of 19 to fail part of the stress tests by at least one capital measure, according to Fed data released March 13. Citigroup, Ally and SunTrust have said they will resubmit capital plans. MetLife is winding down its banking business and has said it remains committed to returning funds to shareholders.

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Monday, 19 March 2012 12:42 PM
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