Sun, Jun 10, 2012 - Page 11 News List

Citigroup retreats from capital payout plan this year

Bloomberg

Citigroup Inc, the third-largest US bank by assets, retreated from an effort to win US Federal Reserve approval to boost payouts for shareholders this year.

The bank will not seek permission to increase payouts in this year’s proposal to regulators and “will make decisions regarding the 2013 capital plan later this year,” it said on Friday in a statement.

“Citi will continue to build its capital levels for the benefit of our shareholders,” it added.

The announcement ends a nearly two-year-long push by the bank’s chief executive officer Vikram Pandit, 55, to boost rewards for shareholders this year. He had vowed in March to seek approval for a “meaningful” payout after the Fed objected to the New York-based firm’s initial submission for this year.

NEAR COLLAPSE

“This is Pandit bowing to reality,” said Matthew McCormick, who helps oversee US$6.2 billion at Bahl & Gaynor Inc in Cincinnati. “They don’t have the ability to return capital to the shareholders that they thought they would.”

Pandit scrapped Citigroup’s dividend in 2009 after the bank almost collapsed and took a US$45 billion bailout from US taxpayers. The lender has since repaid the rescue funds and last year it resumed a US$0.01 quarterly payment.

The Fed found in March that the firm would fall short of minimum requirements during a severe economic slump if the company proceeded with proposed payouts. Without those changes, Citigroup passed the Fed stress tests.

“Citi is one of the best-capitalized banks in the world,” the company said in the statement.

The bank’s stock has declined 24 percent since the Fed’s rejection was disclosed on March 13, closing at US$27.77 on Friday in regular New York trading.

DIVIDEND ISSUE

Pandit had planned an increased dividend or share buyback since at least October 2010, when he said on a conference call that Citigroup “should be in a position to return capital” this year. He asked shareholders for “just a little bit of patience” at an annual meeting in April last year. He said on Jan. 17 that “returning capital” this year remained one of his goals.

“The Fed doesn’t want you to overreach,” McCormick said. “They’ve got no problems slapping you down if they think that you’re over your skis.”

Citigroup said it would redeem a group of trust-preferred securities, or TruPS, and Atlanta-based lender SunTrust Banks Inc. said it would also redeem some TruPS.

DODD-FRANK ACT

The Dodd-Frank Act requires banks with more than US$15 billion of assets to phase out TruPS from capital starting next year. Regulators want capital to consist mostly of common stock and TruPS are a type of junior debt.

Some of Citigroup’s rivals received approval in March to increase rewards for shareholders. The Fed allowed JPMorgan Chase & Co, the biggest US bank, to boost its quarterly payout 20 percent to US$0.30 a share and authorized a US$15 billion stock-repurchase program, with US$12 billion approved for this year. That bank’s CEO, Jamie Dimon, halted this year’s buybacks after announcing trading losses of US$2 billion.

Wells Fargo & Co, the fourth-biggest lender, raised its quarterly dividend 83 percent to US$0.22 a share. Bank of America Corp, the second-biggest bank, did not request an increase.

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