Citigroup: Share Repurchases Unlikely Until 2023

The outlook was already pretty bleak for share repurchases at Citigroup (NYSE: C) in 2022. Management previously told investors to expect modest amounts of share repurchases in the second half of the year. But now, the large U.S.-based bank is very unlikely to repurchase any stock after results from the Federal Reserve's annual stress testing came out worse than expected. Here's why.

All banks must hold a certain amount of regulatory capital in case of a severe economic downturn. Banks pay out dividends and conduct share repurchases with excess capital over the amount of capital they are required to hold.

A good way to evaluate excess capital is to look at a bank's common equity tier 1 (CET1) capital ratio, which is a measure of a bank's core capital expressed as a percentage of its risk-weighted assets such as loans. The Federal Reserve sets a CET1 requirement for each bank every year, and then banks typically manage capital levels above that. CET1 capital is composed of three layers: The base 4.5% level, the stress capital buffer (SCB), and then the surcharge for global systemically important banks (G-SIB) like Citigroup.

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Source Fool.com