A little over a year ago, Citigroup CEO Michael Corbat was in a do-or-die situation — pass the government’s stress test, which Citi had failed twice before, or step down from his position amid a shareholder uprising.
But now, that pressure has passed and Citi also submitted the only “credible” plan to the government to wind itself down smoothly in case of a bankruptcy — a test that five of the other major US banks flunked.
Making a roadmap for winding down the bank, a plan called a “living will,” is now a routine part of each group at Citi, “rather than separate initiatives by people stuck in a room someplace,” John Gerspach, Citi’s CFO, said during a call with reporters on Friday.
The comments from Gerspach came during a call discussing the bank’s first-quarter earnings. The bank’s profit fell 27 percent from a year ago, to $3.5 billion, with drop-offs in credit trading and investment banking slamming the bottom line.
“We’ve made sure that we’ve embedded resolution planning into our day-to-day management of Citi,” he added.
On Wednesday, the Federal Reserve and the Federal Deposit Insurance Corporation said that the living wills of JPMorgan Chase, Bank of America, BNY Mellon, Wells Fargo, and State Street were “not credible.” Morgan Stanley and Goldman Sachs also failed to win over both regulators with its resolution planning.
That left Citi as the only major bank to pass — a stunning turnaround for a bank that not only couldn’t pass the stress tests two years ago, but almost went kaput during the 2008 financial crisis.
Citi twice failed a portion of the stress test in 2013 and 2014 called the comprehensive capital analysis and review, or CCAR. That not only ticked off regulators, but it angered shareholders, who wouldn’t see an increase in the company’s $0.01 dividend, where it had been stuck since 2009. The company now passes along $0.05 a share to investors.
Since then, the bank has shrunk its business, especially abroad, and plans to sell off its retail businesses in Argentina, Brazil and Colombia.
The company hasn’t totally been out of hot water with the government, though. Last year, it paid $2.5 billion in a settlement over currency markets rigging, and $770 million over illegal credit card practices.
