Citigroup Inc. investors approved a reverse stock split as Chief Executive Officer Vikram Pandit said the plan, along with a renewed dividend, will attract more investors to the New York-based bank’s shares.
“These actions open doors for more potential investors to buy in,” Pandit said today in remarks prepared for the company’s annual shareholders meeting in Manhattan. “Some institutional investors will not buy stocks that trade at less than $10 or $5 per share or that do not pay a dividend.”
Investors voted to approve the reverse split, elected all the company’s nominees to the board of directors and rejected shareholder proposals including one that would require an independent review of internal foreclosure controls.
Some attendees at the Hilton hotel called on Citigroup to buy back shares and work to increase the current price instead of carrying out the reverse stock split and dividend payment. Shares have fallen almost five percent so far this year.
Citigroup, ranked third by assets among U.S. lenders, plans to convert every 10 common shares into one new common share at the close of trading on May 6 and start paying a dividend of 1 cent a share in the current quarter.
“Cut expenses, take the proceeds and reduce the shares outstanding,” said Vincent Russo from Eastchester, New York, who said he owned about 55,000 shares. “Not a reverse split. That’s the easy way out.”
Other shareholders were concerned that the split wouldn’t reduce volatility as Pandit said, and that short-sellers would drive back down the price.
“There’s a conspiracy out there against Citi,” said Russell Forenza of Ridgewood, New Jersey, who said he owns more than 20,000 shares. Short-sellers borrow shares and sell them in anticipation of buying back at lower prices, pocketing the difference as profit.
Citigroup’s stock tumbled to about $1 during the financial crisis, and the company suspended dividends as it struggled to stay afloat. The shares sold for $4.55, a decline of 2 cents, as of 4 p.m. in New York Stock Exchange composite trading.
Pandit, 54, steered the company back to profitability after losses tied to subprime home loans forced it to seek a government bailout during the financial crisis. The bank’s capital plan passed a Federal Reserve review earlier this year, clearing Citigroup to resume a one-cent dividend and repurchase stock.
Plea for Buybacks
“There’s no guarantee that the reverse stock split will achieve any of our goals,” said Mario Milelli from Morristown, New Jersey, who said he was a former employee of Smith Barney. “Why can’t we use the massive cash flow that’s generated on a quarterly basis to buy back shares?”
Pandit asked shareholders during a question-and-answer session for “just a little bit of patience” on share buybacks, citing the need to be “in line with where the world is going with capital requirements.” Regulators in the U.S. and internationally are pushing banks to hold more capital as a cushion against another financial crisis.
About 350 shareholders attended the four-and-a-half-hour meeting, which has served as a forum for small investors’ anger in the past. In 2009, about 1,500 shareholders attended a six-hour meeting and ISS Proxy Advisory Services, a shareholder consulting firm, recommended investors vote against four of the board members.
ISS, a unit of MSCI Inc., was this year in favor of all Citigroup directors, each of whom were re-elected with at least 88 percent of the vote, according to the bank’s general counsel Michael Helfer.
“The board has been almost completely reconstituted since the start of the global financial crisis in 2007,” according to the ISS report. “A significant number of Citi’s directors have financial services experience.”
Four directors, including Chairman Richard Parsons, former Alcoa Inc. CEO Alain Belda and Rockefeller Foundation president Judith Rodin, still faced opposition from Glass Lewis & Co, another consulting firm, for failing to ensure the bank’s risk controls were “robust enough” to withstand the subprime crisis.
The California Public Employees’ Retirement System, which controlled about 73 million Citigroup shares at the end of March, withheld votes for Rodin, who has served on the board since 2004. E-mails to Rodin, a director of the bank since 2004, were not returned. Wayne Davis, a spokesman for CalPERS, declined to comment on her re-election.
Glass Lewis also recommended against director Robert Joss because of a consulting agreement he holds with Citigroup which paid him $350,000 last year. He also received $262,500 in fees and stock and the bank does not consider him an independent director.
“Independence is very much a state of mind,” Joss said in a phone interview. “My engagement with the company is something I feel adds value and I enjoy doing and I think I’m making a contribution, but it’s not work I need.”
The vote rejected all the shareholder proposals including one from New York City Comptroller John Liu that the bank carry out an independent review of its foreclosure operations. Liu oversees about 62 million Citigroup shares as trustee of the New York City Pensions Fund. His proposal won 25 percent of the vote.
“It sends a strong message to the board,” said Mike Garland, executive director for corporate governance with the comptroller’s office. “They have not restored confidence in shareholders in what they have done with regard to oversight of the company’s response to the foreclosure process.”