Cramer on Citi: 'They were very cocky'

Cramer: Citi rejection devastating

Citigroup's plan to raise its dividend and boost its stock buyback was rejected by the Federal Reserve because the bank's plans were too aggressive, and it remains "too big to fail," CNBC's Jim Cramer said Thursday.

"They were very cocky," Cramer said of Citi, the biggest of five banks whose plans the Fed rejected as part of its so-called "stress tests," an annual checkup of the nation's biggest financial institutions.

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"This is not ... about a major test that you fail," Cramer said on "Squawk on the Street." "It's meant to be, 'Here's what you need to do.'"

Citi said it had requested permission for a quarterly dividend of 5 cents per share and a stock buyback program of $6.4 billion. The Fed said it turned down Citi's plan because it is too hard to predict how parts of the bank's global operations would fare in a sharp economic downturn.

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In turn, Cramer said the financial institution should be quick to raise equity.

"The smart thing for them to do is to issue a huge number of shares right now at $45," Cramer said. "Instead of battling, instead of complaining, just do it. Get it over with. Move on."

Citi's stock traded lower on the news. (Click here for the latest stock price.)

As to whether he would consider buying the stock at current levels, Cramer said he would wait for an equity offering.

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Citi did not immediately respond to a request for comment.

—By CNBC's Drew Sandholm. Follow him on Twitter @DrewSandholm.