Financial services giant Citigroup (NYSE:C) is bracing for potential regulatory action, the Wall Street Journal reported. The Federal Deposit Insurance Corp.’s (FDIC) five-member board is set to vote on Thursday to downgrade the rating on the bank’s data-management systems from a “shortcoming” to a “deficiency.” This move underscores persistent concerns regarding Citigroup’s ability to effectively manage and measure its data and risks.
Earlier, the U.S. Federal Reserve and the FDIC identified a shortcoming in Citigroup’s “living will,” which outlines the bank’s unwinding process in the event of bankruptcy. If these concerns are escalated to “deficiency” status, regulatory authorities such as the Fed and the FDIC may require Citigroup to implement notable operational changes.
However, the report highlighted that the Fed is not expected to join the FDIC in this escalation.
Citigroup Efforts to Mitigate Risks
It’s worth noting that the FDIC’s recent action does not involve immediate penalties for Citigroup. Nonetheless, if imposed, Citigroup could face significant consequences, such as increased capital requirements or restrictions on growth.
Despite these potential challenges, Citigroup remains confident in its ability to wind down operations effectively without the need for taxpayer support, if ever required. The bank emphasizes its robust balance sheet and strong financial health, which are highlighted by substantial levels of capital, liquidity, and reserves.
Citigroup is updating its systems and automating data and regulatory reports to better manage risks. The bank says its strict stress tests show its commitment to ongoing improvement. However, this transformation may take several years and require a lot of money.
Citigroup’s Risk Analysis
The outcome of the impending FDIC vote and its implications for Citigroup’s regulatory standing and operational adjustments are still uncertain. However, it underscores the financial services giant’s ongoing regulatory challenges.
As the bank faces significantly heightened regulatory expectations, its exposure to legal and regulatory risks is well above the industry average. According to TipRanks’ Risk Analysis tool, legal and regulatory risks account for 24.1% of Citigroup’s total risks, compared to the industry average of 16.9%.
Is Citigroup a Buy or Sell Stock?
Wall Street analysts are cautiously optimistic about Citigroup stock. It has 10 Buys and eight recommendations for a Moderate Buy consensus rating.
Citigroup stock has gained about 19% year-to-date. The analysts’ average C stock price target is $68.94, implying 14.79% upside potential from current levels.
