March 23, 2011
The financial crisis revealed Citi to be one of America's worst performing big banks, requiring a $45 billion dollar taxpayer-funded bailout to keep it from collapse. Stockholders saw their shares fall from $56 in early 2007 to less than $1 in early 2009 while, the cash dividend evaporated. The shares have recovered to the $4 range, but wary investors have stayed away - why waste your money on a bumbling, poorly managed, sclerotic bank when there have been far better investments available?
Investor apathy (or disgust) has kept the stock low. But Citi has a plan! If you won't help the stock creep back up in price, they'll do it themselves. Citi announced yesterday that they will effect a 1-for-10 reverse split, effective May 1. That means if you own 100 shares of Citi today worth about $4.50 per share, you will soon own just 10 shares but it will be worth $45 per share. Does this create value for shareholders? No, it just moves the decimal point. Citi did reinstate a quarterly cash dividend of a penny a share, 99.5% lower than the $2.16 annually that shareholders were getting before Citi was exposed as a junk bin masquerading as a bank.
But don't feel bad for CEO Vikram Pandit. The poor guy was stuck at a salary of $1/year for the last two years, making you wonder how he paid his bills (the $165 million Citi paid for his hedge fund - since closed - helped). But now he's back up into seven figures despite presiding over the vaporization of 90% of his shareholders' value.
And now the dividend is back - at a penny a share. Management of this bank should be embarrassed.
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).