Citi to wait on dividend hike
The Financial Times notes that Citigroup was hoping to celebrate its 200th anniversary this year with a substantial dividend hike.
Bank executives made no secret of its plans, but perhaps they flew a bit too close to the sun. In what was widely seen as an embarrassment for the bank, the Federal Reserve rejected its plans for a dividend hike, as it narrowly failed the most recent stress test. The conventional wisdom was that Citigroup would moderate its ambitions and re-submit plans for a dividend hike to the Fed. But now CEO Vikram Pandit is saying that perhaps the bank will wait until the 2013 stress tests to seek a dividend hike. That might be the best idea.
Citigroup may well continue to benefit from strong trends that lifted earnings in the first quarter. Revenue is once again heading north at top banks, and that's a huge relief. If Citigroup can continue to earn its way to higher capital and perhaps generate a nice capital pop from the sale of some assets--the sale of its 49 percent stake in Morgan Stanley Smith Barney, for example--it might be able to make a big capital-return statement in 2013.
That said, Pandit was hoping to make a big statement in 2012. There's a lot of gamesmanship involved. You don't want to seek a massive dividend only to fail.
Debate over stress tests continues