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Citizens to Maintain Current Dividend Level Through 3Q21

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As part of its 2020 capital plan, Citizens Financial Group, Inc. (CFG - Free Report) expects to maintain its current dividend level through the third quarter of 2021. Also, the company has suspended all share repurchases for 2020.

The decision follows the Federal Reserve’s move to restrict payouts of large banks post stress test results. Fed has asked banks to maintain sufficient liquidity by suspending share repurchases for the third quarter. Also, it capped dividend payments in a way that the firms can either pay a dividend equal to the amount paid out in the second quarter or an amount equal to the average of the bank’s net income for the four preceding quarters.

Further, the Fed has determined Citizens’ stress capital buffer (“SCB”) to be 3.4%, beginning October 2020. The stress capital buffer is the excess capital that the company must hold above its minimum capital requirements.

“We are pleased that the Federal Reserve’s 2020 CCAR results illustrate Citizens’ strong capital position and the continued improvements we’ve made to our balance sheet and business model,” said Bruce Van Saun, chairman and chief executive officer. “We continue to demonstrate our resiliency, with a strong capital base that we are putting to use in support of our clients and communities.”

Notably, Citizens is mulling to follow a reconsideration process set to take place in July and August for SCB percentage calculated by the Fed. Per the company, the regulator’s pre-provision net revenue (“PPNR”) model uses data from earlier periods when Citizens was under foreign ownership. The company’s ratio of PPNR to average assets in the first quarter of 2020 was 3.5, and it expects the ratio to remain strong in the second quarter as well.

Also, the company’s modeled credit loss rate of 4.2% under the 2020 Supervisory Severely Adverse scenario is significantly lower than the Federal Reserve’s estimate of 5.6%. In Citizens’ opinion, the Federal Reserve’s credit loss modeling methodology results in higher credit loss rate estimates as it does not take into account certain loan characteristics and counterparty loss-sharing obligations.

Ally Financial’s (ALLY - Free Report) SCB has been determined at 3.5% by the Board, whereas for JPMorgan Chase (JPM - Free Report) it has been fixed at 3.3%. For Capital One (COF - Free Report) , the buffer requirement as determined by the Fed is 5.6%.

Our Take

Citizens’ involvement in acquisitions reflects its strong capital position and its aim to expand reach and product offerings. Also, it continues to focus on revenue and efficiency initiatives, dubbed the TOP Program, encourages us. However, costs are witnessing a rise.

Shares of Citizens have lost around 42% in the past six months compared with the 34% decline witnessed by the industry it belongs to.



Currently, the company carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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