Citigroup Inc. (C:US), the third-largest U.S. bank by assets, retreated from an effort to win Federal Reserve approval to boost payouts for shareholders this year.
The bank won’t seek permission to increase payouts in its 2012 proposal to regulators, and “will make decisions regarding the 2013 capital plan later this year,” it said yesterday in a statement. “Citi will continue to build its capital levels for the benefit of our shareholders.”
The announcement ends an almost two-year push by 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 2012.
“This is Pandit bowing to reality,” said Matthew McCormick, who helps oversee $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 $45 billion bailout from U.S. taxpayers. The lender has since repaid the rescue funds, and last year it resumed a 1-cent 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 March 13, closing at $27.77 yesterday in regular New York trading.
Pandit had planned an increased dividend or share buybacks since at least October 2010, when he said on a conference call that Citigroup “should be in a position to return capital” in 2012. He asked shareholders for “just a little bit of patience” at an annual meeting in April 2011. He said Jan. 17 that “returning capital” this year remained one of his goals.
“The Fed doesn’t want you to overreach,” said McCormick. “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. SunTrust Banks Inc., the Atlanta-based lender, said it would also redeem some TruPS.
The Dodd-Frank Act requires banks with more than $15 billion of assets to phase out TruPS from capital starting in 2013. Regulators want capital to consist mostly of common stock, and TruPS are a type of junior debt.
JPMorgan, Wells Fargo
Some of Citigroup’s rivals received approval in March to increase rewards for shareholders. The Fed allowed JPMorgan Chase & Co. (JPM:US), 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. That bank’s CEO Jamie Dimon halted this year’s buybacks after announcing trading losses of $2 billion.
Wells Fargo & Co. (WFC:US), the fourth-biggest lender, raised its quarterly dividend 83 percent to 22 cents a share. Bank of America Corp. (BAC:US), the second-biggest bank, didn’t request an increase.
Shares in Wall Street firms have tumbled since March on concern that Europe’s sovereign debt crisis will intensify. This could have caused the Fed to reject Citigroup if the bank had sought to boost its payout this year, according to Gerard Cassidy, an analyst with Royal Bank of Canada. Another rejection would damage the lender’s reputation, Cassidy said.
“Management chose that discretion is the better part of valor,” said Cassidy, who has an “outperform” rating on Citigroup. “Investors would start to question what’s wrong with Citi if they got rejected again.”
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