Citigroup May Wait for Capital Plan on Dividend, Buybacks

Citigroup May Wait for 2013 Capital Plan on Dividend
Pedestrians walk in front of a Citigroup Inc. bank branch in San Francisco, California. Photographer: David Paul Morris/Bloomberg

Citigroup Inc., the bank that’s been paying a 1-cent quarterly dividend since last year, may wait until it submits a 2013 capital plan to the Federal Reserve before seeking approval to boost the payout or buy back shares.

“As we consider our resubmission for this year, we also have to keep in mind that we will be submitting the 2013 capital plan to the Fed a short time later,” Chief Executive Officer Vikram Pandit, 55, said today on a conference call with analysts. “We’re having the conversations with the Fed which will inform what we submit and what we ask for.”

Pandit said the request “could range from resubmitting exactly what we asked for before all the way to waiting until the 2013 submission.”

The Fed rejected in March a plan by New York-based Citigroup to return capital to shareholders. Regulators found that the proposal, which may have included a higher dividend, would cause the bank’s capital buffer to fall below a minimum standard in an economic slump. Pandit had told investors the bank was ready to return capital this year.

Citigroup, the third-largest U.S. bank by assets, began paying the 1-cent dividend in 2011. Pandit’s failure to secure Fed approval for a higher payout was a “self-inflicted wound,” according to Matthew McCormick, who helps oversee $6.2 billion at Bahl & Gaynor Inc. in Cincinnati. The firm focuses on dividend-paying stocks and doesn’t own Citigroup shares.

Citigroup advanced 2.8 percent to $34.35 at 2:12 p.m. in New York trading. It has gained 31 percent this year.

More From Fed

The bank expects to receive more information from the Fed this month and must submit a revised plan by mid-June, Pandit said. The central bank then has 75 days to review the submission, he told analysts.

“We expect to keep building our capital, we will keep executing our strategy,” Pandit said. “We will take every step we can to generate strong returns for our shareholders.”

Pandit discussed the stress tests after first-quarter net income slipped $2.9 billion from $3 billion a year earlier. Revenue rose 1 percent to $20.2 billion, excluding one-time items. Revenue from bond-trading more than doubled while consumer-banking profit jumped 14 percent to $2.19 billion.

The Fed allowed JPMorgan Chase & Co., the biggest U.S. bank, to boost its quarterly payout 20 percent to 30 cents a share and authorized a $15 billion stock-repurchase program, with $12 billion approved for 2012.

Wells Fargo, BofA

Wells Fargo & Co., the fourth-biggest lender, raised its quarterly dividend 83 percent to 22 cents a share. Bank of America Corp., the second-biggest bank, didn’t request an increase.

Pandit scrapped Citigroup’s dividend in 2009, soon after the bank almost collapsed and took a $45 billion bailout from U.S. taxpayers. The lender, the third-biggest in the U.S., has since repaid the rescue funds.

“Why take a risk with something that is a little more questionable?” McCormick said in a phone interview last week. “There are other, better banks that are less volatile, better managed and less risky and with stronger dividend growth, which is what I would recommend people seek out.”

Citigroup gained 39 percent in the first quarter, the third-best performance among the 24 companies of the KBW Bank Index. Bank stocks rose as U.S. economy improved and amid “less-than-negative news from Europe,” McCormick said. Citigroup climbed in spite of the Fed’s rejection, he said.

“I don’t think it was because of a rousing performance, a rousing execution from Citigroup,” McCormick said. “Until I see a bigger dividend increase, I’m on the sidelines because that is one of the key differentiators for us, and I think other investors as well.”


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