After staying out of the spotlight in the past two years,
Citigroup's potential problems are gaining attention again, while
Bank of America's share price has surged.
Bank of America used to be the stock Wall Street loved to hate. Citigroup, on the other hand, was supposed to be the troubled bank that had finally gotten its act together.
Those familiar roles have been reversed in 2012, however, and with bank earnings season set to start later this week, investors will be closely watching to see how the two lenders match up.
The two have plenty in common. Both giants turned to the U.S. government for help after the financial crisis in 2008, and both have chief executives who have spent much of their tenure cleaning up the messes they inherited.
Both companies have also had to issue significant amounts of new stock to raise capital that solidified their balance sheets but left their shares at a fraction of precrisis highs. Citigroup and Bank of America also face the risk of a credit downgrade by the ratings agency Moody's Investors Service in mid-May.
Until last month, it seemed that Citigroup was recovering more quickly. But when the Federal Reserve blocked the company's proposal to buy back stock and increase its dividend after stress tests last month, investors were left wondering whether they had bet on the wrong horse.
Bank of America passed all of its stress tests this time around - - after its own inability in 2011 to deliver a dividend increase that investors had been hoping for -- and chose to continue to build capital for the rest of 2012.
Bank of America shares are up 66 percent this year, while Citigroup has risen 33 percent, amid the broader rebound in financial stocks. After Citigroup has stayed out of the spotlight and earned $21 billion over the past two years, its potential problems are gaining attention again. "Citigroup Is the New Bank of America," TheStreet.com declared after the stress test results were made public in March.
Vikram S. Pandit, the chief executive of Citigroup, and other top officials may still increase the company's dividend, albeit in the fourth quarter and for less than they initially proposed. Brian T. Moynihan, the chief executive of Bank of America, has made it clear that increasing capital levels and shedding noncore assets, rather than returning capital to investors, are the order of the day for now.
At Barclays, the analyst Jason Goldberg said he had been shocked when Citigroup did not get the go-ahead from the Fed, adding, "We had run mock stress tests with Citi passing by a fair amount."
Just as surprising, he added, has been Bank of America's surge this year. Its performance has been a far cry from last year, when Bank of America's stock, which closed at $9.23 on Thursday in New York before the holiday weekend, was flirting with $5, and questions about whether it had enough capital were mounting.
"If you asked me in January whether this thing would be up 66 percent, I'd have said you're crazy," Mr. Goldberg said, referring to Bank of America's stock performance this year. "They've played some catch-up."
The stress tests by the Federal Reserve, the third and most stringent since the financial crisis in 2008, examined how bank capital levels would be affected by a deep economic decline in the
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