CitigroupMark Lennihan
Citigroup Inc.will slash the number of common shares outstanding and reintroduce a dividend, taking another step in its long recovery from the brink of failure during the financial crisis.
Many of the biggest U.S. banks announced dividend hikes on Friday after the Federal Reserve completed a second round of industry stress tests and approved the increased payouts.
Citi said it will shrink the number of common shares outstanding to 2.9 billion from 29 billion through a 1-for-10 reverse stock split. It will start paying a quarterly dividend of 1 cent per share in the second quarter. It suspended dividend payouts two years ago.
That penny per share is "almost symbolic," said Michael Holland, chairman of money manager Holland & Co.
"It does indicate a reflection of the fact the company has moved toward financial health, if not strength," said Mr. Holland, whose company has owned Citigroup shares in the past but does not currently hold them.
The third-largest U.S. bank largely finished extricating itself from U.S. government ownership in December after taking $45 billion in bailout aid during the financial crisis. The bank reported a full-year profit for 2010, its first since 2007.
Its reinstated dividend pales in comparison to the payouts announced by some rivals on Friday. JPMorgan Chase & Co , for example, will pay 25 cents per share -- a 20-cent increase.
But by reinstating the dividend this year, Citigroup is ahead of its own schedule to start rewarding its investors -- albeit to a limited extent. Chief executive officer Vikram Pandit previously said the bank intended to return capital to shareholders in 2012, and he reiterated that ambition in a statement Monday.
"The reverse stock split and intention to reinstate a dividend are important steps as we anticipate returning capital to shareholders starting next year," Mr. Pandit said.
The bank intends to increase its payouts beyond a penny per share starting next year, a person familiar with the matter said on Monday.
The reverse split will reduce Citi's outstanding common shares to 2.9 billion, from about 29 billion currently. No fractional shares will be issued.
The reverse split will take effect after the close of trading on May 6.
Such reverse splits are largely psychological and have traditionally been the resort of companies trying to make their shares look more attractive to institutional investors. Citigroup shares rose to $5.15 in mid-January but in the past month have hovered in the mid-$4 range.
The shares were up 4 cents at $4.54 in morning trading on Monday.
"A lot of it was due to the low price, they want to make it more attractive," said Matt McCormick, a portfolio manager at Cincinnati-based Bahl & Gaynor Investment Counsel, which owns bank stocks but not Citigroup.
The reinstated dividend and the reverse split together are "a token," he said. "It's not enough for me to express interest in it."