Fed says no to Citigroup payout and buy-back plans

The Federal Reserve on Wednesday barred Citigroup from raising its dividend or boosting its stock buy-backs, saying it is too hard to predict how some parts of the bank's global operation would fare in a sharp economic downturn.

It was a setback for Citigroup, one of the biggest banks in the United States, which has been cutting jobs and trimming some businesses to improve its finances.

Citigroup was the biggest of the five banks whose plans were rejected by the Fed as part of its so-called "stress tests", an annual check-up of the country's biggest financial institutions. This year, 30 banks underwent the tests to determine if their capital buffers were large enough to keep them lending through another financial crisis.

Citigroup had asked the Fed's permission to buy back US$6.4 billion in shares through the first quarter of next year and raise its dividend to five US cents each quarter, up from a penny now.

The New York-based lender was also blocked from raising its dividend in 2012 after failing its stress test. Later that year, it brought in a new chief executive, Mike Corbat, with a mandate to speed up its turnaround.

Corbat said on Wednesday that the company was "deeply disappointed" by the Fed decision. The dividend and buy-back would have been a "modest level of capital" for shareholders, and Citigroup still would have exceeded requirements for its financial health, he said.