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Citizens Financial's (CFG) Capital Needs Become Stringent
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The 2023 stress test determined Citizens Financial Group, Inc.’s (CFG - Free Report) preliminary Stress Capital Buffer (“SCB”) at 4%. This implied a regulatory minimum CET1 ratio of 8.5%, up from the previous 7.9%.
While the regulatory requirement will be effective Oct 1, 2023, CFG expects the second-quarter 2023 CET1 ratio to be 175 basis points above the regulatory minimum. This underlines the capital strength of CFG, and enables the bank to undertake organic growth initiatives and continue capital disbursements.
Notably, in February 2023, CFG increased the capacity of its common share repurchase program by an additional $1.5 billion. In first-quarter 2023, it bought back $400 million of common stock and had $1.6 billion of remaining authorization. The company announced $1.344 billion of remaining capacity under the repurchase program as of Jun 30, 2023, indicating significant share repurchases undertaken during the quarter.
“We are pleased that the Federal Reserve’s stress test results illustrate Citizens’ strong capital position well in excess of our regulatory minimum and the resilience of our balance sheet and business model. In addition, we take further comfort in the fact that our company-run stress test results imply significantly lower capital drawdown than the Federal Reserve’s models,” noted John F. Woods, vice chairman and chief financial officer of CFG.
As of Mar 31, 2023, the company’s capital ratios exceeded regulatory requirements and it had targeted the CET1 ratio to be 9.5-10% for 2023. Notably, Citizens Financial has been prudently managing a decent level of capital base. It suspended its stock repurchases in second-quarter 2021 for the Investors Bancorp merger.
Particularly, in April, CFG completed the acquisition of Investors Bancorp for $3.39 billion, which strengthened its banking franchise and boosted the consumer customer base. In February 2022, it closed the acquisition of 80 East Coast branches and the national online deposit business from HSBC.
The acquisitions of Investors Bancorp, combined with the HSBC branches, create a strong franchise in the greater New York City and Philadelphia Metro areas, and New Jersey by adding 234 branches. Apart from this, the acquisitions have strengthened the company’s balance sheet, creating a strong foundation for revenue growth.
Shares of CFG have declined 32.6% in the year-to-date period compared with the industry’s fall of 26.5%.
Banks With Enhanced Capital Deployment Plans Post Stress Test Results
Some large U.S. banks, including JPMorgan (JPM - Free Report) and Wells Fargo (WFC - Free Report) , said on Friday that they would return more cash to shareholders after the clearance of the 2023 stress test.
JPM, the largest U.S. bank, intends to raise the quarterly dividend by 5% to $1.05 per share. This follows no change in the dividend payout last year.
Likewise, Wells Fargo announced plans to hike the dividend to 35 cents per share from the current 30 cents. Also, over the four-quarter period through the second quarter of 2024, WFC has the capacity to repurchase shares.
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Citizens Financial's (CFG) Capital Needs Become Stringent
The 2023 stress test determined Citizens Financial Group, Inc.’s (CFG - Free Report) preliminary Stress Capital Buffer (“SCB”) at 4%. This implied a regulatory minimum CET1 ratio of 8.5%, up from the previous 7.9%.
While the regulatory requirement will be effective Oct 1, 2023, CFG expects the second-quarter 2023 CET1 ratio to be 175 basis points above the regulatory minimum. This underlines the capital strength of CFG, and enables the bank to undertake organic growth initiatives and continue capital disbursements.
Notably, in February 2023, CFG increased the capacity of its common share repurchase program by an additional $1.5 billion. In first-quarter 2023, it bought back $400 million of common stock and had $1.6 billion of remaining authorization. The company announced $1.344 billion of remaining capacity under the repurchase program as of Jun 30, 2023, indicating significant share repurchases undertaken during the quarter.
“We are pleased that the Federal Reserve’s stress test results illustrate Citizens’ strong capital position well in excess of our regulatory minimum and the resilience of our balance sheet and business model. In addition, we take further comfort in the fact that our company-run stress test results imply significantly lower capital drawdown than the Federal Reserve’s models,” noted John F. Woods, vice chairman and chief financial officer of CFG.
As of Mar 31, 2023, the company’s capital ratios exceeded regulatory requirements and it had targeted the CET1 ratio to be 9.5-10% for 2023. Notably, Citizens Financial has been prudently managing a decent level of capital base. It suspended its stock repurchases in second-quarter 2021 for the Investors Bancorp merger.
Particularly, in April, CFG completed the acquisition of Investors Bancorp for $3.39 billion, which strengthened its banking franchise and boosted the consumer customer base. In February 2022, it closed the acquisition of 80 East Coast branches and the national online deposit business from HSBC.
The acquisitions of Investors Bancorp, combined with the HSBC branches, create a strong franchise in the greater New York City and Philadelphia Metro areas, and New Jersey by adding 234 branches. Apart from this, the acquisitions have strengthened the company’s balance sheet, creating a strong foundation for revenue growth.
Shares of CFG have declined 32.6% in the year-to-date period compared with the industry’s fall of 26.5%.
Image Source: Zacks Investment Research
CFG currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Banks With Enhanced Capital Deployment Plans Post Stress Test Results
Some large U.S. banks, including JPMorgan (JPM - Free Report) and Wells Fargo (WFC - Free Report) , said on Friday that they would return more cash to shareholders after the clearance of the 2023 stress test.
JPM, the largest U.S. bank, intends to raise the quarterly dividend by 5% to $1.05 per share. This follows no change in the dividend payout last year.
Likewise, Wells Fargo announced plans to hike the dividend to 35 cents per share from the current 30 cents. Also, over the four-quarter period through the second quarter of 2024, WFC has the capacity to repurchase shares.