Citigroup (NYSE:C) has asked the Federal Reserve to authorize a $1.2 billion share buyback program this year, in a bid to prove it has recovered from the financial crisis and improved its operations in the past year.
The third-largest bank disclosed its request on Thursday afternoon, after the Fed released the first round of stress test results. Citigroup fared relatively well in those initial results: the Fed determined that it would maintain an above-average Tier 1 capital ratio under a "severely adverse" economic scenario.
Citigroup did not ask the Fed to allow it to increase its dividend from a token 1 cent per share per quarter. But permission to start buying back shares would be a much-hoped-for regulatory endorsement of the bank and its new chief executive, Michael Corbat. A year ago, Citigroup unexpectedly flunked a previous round of stress tests, dooming Citigroup's request to start returning capital to shareholders and embarrassing then-CEO Vikram Pandit. The rejection angered investors and spelled the beginning of the end for Pandit, who was abruptly ousted in October.
Citigroup's Tier 1 capital ratio in the tests was 8.3%, about two percentage points above the results of larger competitors JPMorgan Chase (JPM) and Bank of America (BAC). The average ratio for the 18 financial companies tested was 7.4%, which is above the 6% threshold that regulators consider "well-capitalized."
The next round of stress tests results is scheduled for release on March 14, which will give a clearer idea whether Citi's buyback request is likely to be approved.