Please, won’t you think about the poor shareholders?
The U.S. Federal Reserve on Wednesday rejected Citigroup’s planned payout to shareholders because of shortcomings found in its annual check-up of the financial health of the country’s biggest banks, the second time Citi was dealt a blow in the so-called stress tests.
Citi was among five banks that the Federal Reserve blocked from going through with planned payouts because of results from the stress tests.
The Fed also blocked plans for higher dividends or share buybacks submitted by the U.S. units of HSBC, RBS and Santander due to weaknesses in their capital planning processes. Zions Bancorp’s was the fifth bank whose plan were barred, though this was expected because Zions last week was the only bank to miss minimum hurdles for regulatory capital in a first tranche of the stress tests, which simulate a future crisis as severe as the 2007-09 credit meltdown.
… The five banks will not be allowed to move forward with proposed raises in dividends and share buybacks, though they can continue with shareholder payouts at the same pace as they did last year.
This is interesting for a couple of reasons. First it shows just how powerful the Federal Reserve Bank is. It also shows just how weak stockholders are. Finally it indicates that getting rid of the Glass Steagall Act was disastrous to the U.S. economy.