Citi fined $136M by Fed and OCC, Piper Sandler somehow remains bullish on stock By Investing.com

On Thursday, Citi (NYSE:C) faced a regulatory setback as the Federal Reserve and the Office of the Comptroller of the Currency (OCC) imposed fines totaling $136 million for the bank’s non-compliance with a 2020 enforcement action. The regulators highlighted Citi’s inadequate progress in improving data quality management and establishing necessary controls to manage risk.

Despite the fines, which represent approximately $0.06 per share or 1% of the estimated earnings per share for 2024, Piper Sandler somehow maintained an Overweight rating and a $70.00 price target on Citi stock.

The firm acknowledged that the news could lead to short-term weakness in the stock but expressed confidence that investors who are well-versed with Citi’s regulatory challenges would likely view this development as part of a longer remediation journey.

The fines are seen as a reminder of the ongoing efforts required by Citi to resolve its regulatory issues, which Piper Sandler described as a “marathon rather than a sprint.” The firm anticipates that there might be some temporary market reaction to the penalties but remains optimistic about the bank’s ability to manage the situation.

Piper Sandler also anticipates that Citi’s management will address the bank’s strategies for dealing with these regulatory matters during the upcoming second-quarter earnings call on Friday. This discussion is expected to clarify any remaining concerns and provide reassurance to shareholders.

In summary, despite the recent fines by federal regulators, Piper Sandler reaffirmed its positive stance on Citi, with expectations that the bank will continue to work towards resolving its regulatory challenges and that the market will absorb the current setback.

In other recent news, Citigroup Inc (NYSE:). has announced a reduction in its indicative Stress Capital Buffer (SCB) requirement to 4.1%, a decrease of 20 basis points from the previous 4.3%.

This change will take effect in October 2024, along with a similar decrease in the preliminary Standardized Common Equity Tier 1 (CET1) capital ratio regulatory requirement. The bank also plans to raise its quarterly common stock dividend from $0.53 to $0.56 per share, starting in the third quarter of 2024.

In addition, Citigroup confirmed the departure of Peter Cai, the bank’s head of risk data, amid a significant reorganization effort. This exit follows regulatory scrutiny over the bank’s data management and risk control processes, particularly regarding its ‘living will’, a plan outlining bankruptcy management strategy. However, J.P.Morgan’s analysis suggests these issues are manageable.

Citigroup, along with JPMorgan and HSBC, is set to earn significant fees from Hyundai Motor (OTC:)’s upcoming initial public offering (IPO) in India, potentially contributing to a shift in the Indian market’s revenue potential. The IPO could yield up to $40 million in bank fees, marking the second-largest fee collection for an IPO in the nation.

Lastly, Citigroup, along with other major U.S. banks, is expected to maintain ample capital reserves following the Federal Reserve’s annual stress tests, despite current economic and regulatory uncertainties. These developments are among the recent news that investors should consider.

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