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Easy Street

Citigroup’s Love Letter to Shareholders

Marketplace Contributor Jun 8, 2012

All Citigroup ever wanted was to give its shareholders a bigger dividend.&nsbp;

Back in March, the Federal Reserve conducted a new round of “stress tests” for American banks to see if they could survive another financial crisis.&nsbp;

Citigroup….didn’t fail the stress tests exactly – as it snippily announced in a pointed blog post –  but it also didn’t get everything it wanted.&nsbp;

It’s like this: ever since 2007, when CEO Chuck Prince said the bank would keep dancing as long as the music played, Citigroup has borne the shame of losing its dividend. Back then, when analyst Meredith Whitney suggested the bank might cut its dividend, Citigroup executives turned on her and snarled.

Whitney, of course, was right. Citigroup had to eliminate its dividend, suffer the indignities of enormous bailouts and executive changes, and throughout five hard years of being Too Big to Fail,the bank has yearned for nothing more than to recapture its former grace with shareholders. Citigroup has a dividend in place right now, but the bank does not think it’s enough.

In a press release late Friday, Citigroup wanted to remind shareholders that it has not forgotten them. The bank insisted it would re-submit its financial results to the Federal Reserve on Monday. And while Citigroup is going to let the dividend issue slide for now – known here as “returning capital to shareholders” – next year, Citigroup seems to indicate, it expects a better answer. Because it’s worth it. Below is Citigroup’s announcement, with a handy translation.

In March, the Federal Reserve released the results of its hypothetical severe stress test scenario as part of the 2012 CCAR. The results showed that Citi comfortably exceeded the stress test requirements without Citi’s proposed capital actions.

Translation: “We passed the stress test if you don’t count our dividend plan. Just saying.”

However, while the Federal Reserve did not object to Citi conducting certain capital actions…and to continue its current dividend, it did not approve Citi’s request to return additional capital to its shareholders.

Translation: The Fed didn’t let us increase our dividend, although it let JP Morgan hike its dividend by 20 percent. Jamie gets all the breaks!

The Federal Reserve will act on the plan later this year. As we noted in April, the Federal Reserve’s schedule requires us to submit our 2013 capital plan in January.  In light of that timing, we have decided not to request any additional return of capital in the 2012 re-submission. We will make decisions regarding the 2013 capital plan later this year. In the meantime, we will continue to build additional capital through earnings and the ongoing reduction of non-core assets.

Translation: Fine, we’re going to go back and train our balance sheet and show the Fed. You ever see the movie Rocky? Like that.

Citi is one of the best capitalized banks in the world.  At of the end of the first quarter of 2012, our Tier 1 Common ratio was 12.5% under Basel I and an estimated 7.2% under Basel III, Citi is also highly liquid, with close to $500 billion in cash and available-for-sale securities, representing approximately 26% of the balance sheet.

Translation: $500 billion in cash and securities! That’s enough for a dividend for sure. What do you want, Ben? Blood?

These strong capital and liquidity levels result from the decisions we made to make Citi a fundamentally different company today than it was before the financial crisis.  We have overhauled risk management and focused on the basics of banking, leveraging our unique presence throughout the emerging and developed markets to serve our clients and the real economy.  We have sold more than 60 businesses that were non-core to our strategy, helping to drive the approximately 75% reduction in the size of Citi Holdings.  At of the end of the first quarter, Citi Holdings assets were $209 billion, or just 11% of Citi’s total balance sheet. 

Translation: You still see us as that poor little bailed-out bank. We’re not that mixed-up little person anymore!

With greatly improved financial strength, a highly liquid balance sheet, and our strategy showing results, Citi will continue to build its capital levels for the benefit of our shareholders.

Translation: We love you. Do you love us? Say you do.

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