Deutsche Bank expects Citi to buy back $1 billion in shares every quarter

(Reuters) - Deutsche Bank said it expects Citigroup Inc (C.N) to buy back $1 billion (0.66 billion pounds) in shares every quarter and other U.S. banks to modestly boost dividends and share buybacks as part of their capital deployment plans under the Federal Reserve's stress test.

Stress tests, part of the Fed's annual comprehensive capital analysis and review (CCAR), are designed to ensure that banks have enough capital cushions and are not being overly aggressive in returning cash to shareholders. The results of the latest round of tests are expected in March.

The Fed has twice rejected Citigroup's plans to buy back shares and boost dividends in three years, saying the bank was not sufficiently prepared to handle a potential financial crisis.

Deutsche Bank upgraded Citigroup's stock to "buy" from "hold", saying the sale or an initial public offering of the company's consumer finance unit could also be a "near-term positive". The unit, OneMain Financial Holdings Inc, filed for an IPO in October.

The brokerage said it expected the biggest increases in combined dividend and buyback yields at Citigroup, Bank of America Corp (BAC.N), Regions Financial Corp (RF.N), Morgan Stanley (MS.N), SunTrust Banks Inc (STI.N) and Citizens Financial Group Inc (CFG.N).

The brokerage predicts total payout ratios at the bigger regional banks to be 79 percent on average, compared with 69 percent last year.

(Reporting by Neha Dimri in Bengaluru; Editing by Savio D'Souza)