Citigroup (NYSE:C) faced a regulatory setback as the Federal Deposit Insurance Corp. (FDIC) rejected its “living will,” the Financial Times reported. According to the report, the FDIC’s five-member board voted to downgrade Citigroup’s data-management systems rating from “shortcoming” to “deficiency.” This adds to the ongoing concerns about Citigroup’s risk management framework.
To provide background, regulatory reforms after the 2008 financial crisis mandated financial institutions like Citigroup to draft comprehensive living wills. These blueprints serve as crucial contingency plans, outlining procedures for the orderly unwinding of operations in the event of bankruptcy.
The primary goal is to protect taxpayers and the broader financial system from the repercussions of a bank’s potential collapse. The FDIC, along with the Federal Reserve, periodically scrutinizes these plans.
No Immediate Penalty for Citigroup
It’s worth noting that the FDIC’s recent decision will lead to no immediate penalty for Citigroup. However, Citigroup awaits a verdict from the Federal Reserve on its living will.
Nevertheless, if Citigroup fails to obtain approval from both the FDIC and regulators, it could face higher capital requirements.
Citigroup’s Initiatives to Address Regulatory Concerns
To address regulatory concerns and fortify its risk management framework, Citigroup is enhancing its systems, automating data processes, and reinforcing regulatory reporting. Citigroup’s stress tests support these efforts, showing continuous improvement in risk mitigation strategies.
Further, Citigroup has a strong balance sheet and maintains substantial capital and reserves.
On June 18, Mark Mason, Citigroup’s CFO, said that the bank is actively addressing regulatory concerns. He added that in 2024, Citigroup will focus on regulatory reporting, data integrity, and strengthening the stress testing process.
Is Citigroup a Buy or Sell Stock?
Analysts are cautiously optimistic about Citigroup stock. With 11 Buys and eight Hold recommendations, Citigroup stock sports a Moderate Buy consensus rating. Citigroup stock has gained about 20% year-to-date. The analysts’ average C stock price target is $68.89, implying 13.64% upside potential from current levels.
