On Friday, Citigroup's Chief Financial Officer, John Gerspach, that managers of the company are thinking about the bank's possible failure in the future. His statements provided a possible explanation as to why the fourth largest bank in the US was the only bank in the country whose hypothetical wind-down plans were approved by both the Federal Deposit Insurance and the US Federal Reserve.
The statements made from Gerspach came during a call discussing Citi's first-quarter earnings. Citi's profit dropped 27 percent in 2015 to $3.5 billion, with drop-offs in investment banking and credit trading reports The New York Post. He added that the bank had made sure they have "embedded resolution planning" into their day-to-day management.
According to The Wall Street Journal, experts and bank analysts said that Citi's revenue and profit fell in the first quarter. Gains per share consensus is predicted to come in at $1.03, down from $1.52 in the same period last year. Meanwhile, the bank's revenue is estimated to fall to $17.5 billion from $19.8 billion in the first quarter last year.
The Federal Deposit Insurance Corporation and the Federal Reserve said on Wednesday that the living wills of Bank of America, State Street, Wells Fargo, BNY Mellon, and JP Morgan Chase were not credible. Both Goldman Sachs and Morgan Stanley failed to win over both regulators with its resolution planning.
This left Citi as the only major bank player to pass, a striking turnaround for a bank that not only could not pass the stress test for the past two years but almost went bank broke during its financial crisis in 2008.
Although the regulators noted there were no serious deficiencies in Citi's plan, they stressed that the bank needs to resolve its shortcomings. The main goal of the living will exercise is to get banks to integrate financial crisis scenarios in their operations, says Reuters.
The test, also known as CCAR, allows regulators to determine whether a bank has enough capital to withstand a serious recession. Gerspach said that Citi has done the exercise and has also made sure that employees are considering the impact business decisions will have on a yearly stress test.
