Citigroup Inc., one of the worst-hit banks during the financial crisis, is taking more steps to get back in the good graces of shareholders.
The bank will reinstate a quarterly dividend, albeit just a penny per share, and reduce the amount of shares it has outstanding. This second maneuver, called a "reverse stock split," will lift the company's stock price and allow more institutional investors to own it.
Many large investors like pension funds and mutual funds are barred from owning stocks that trade below $5, which has been the case with Citi since early 2009. Under Citi's plan announced Monday, every 10 shares of its stock will be exchanged for 1 new share as of May 6. That will lift the price of each share of Citi stock by 10 times. Since there will be 10 times fewer shares outstanding, the overall value of the company will remain the same.
The amount of Citi shares outstanding will drop to 2.9 billion from 29 billion, which will also make the dividend payout lighter on Citi's pocket.
Citi's stock edged down 9 cents to $4.41 in midday trading. At that rate, each new share of Citi stock would be worth about $44.10 after the reverse split is completed. Citi's stock traded just below $50 in October 2007, a year before the financial crisis hit.
"For a company that had a near-death experience two years ago, it's symbolically meaningful to get the go-ahead from the government to pay out a dividend no matter how small," said Jason Goldberg, a banking analyst at Barclays Capital.
Though Citi has paid back the $45 billion it received from the government in 2008, it cannot pay quarterly dividends of more than 1 cent a share until 2012 as a condition of the rescue. To bypass that rule, it would have to obtain consents from the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp.
The Fed's green signal last week to banks to increase dividends last week was seen as a sign of the industry's return to health. Several large banks including JPMorgan Chase & Co. and Wells Fargo & Co. quickly announced plans to raise their dividends and buy back shares.
Free from the government's hand, Citigroup has been working to please the bank's other shareholders. Citi has focused much of its energy in the past two years on cutting off parts of its businesses that don't fit with its main banking operation.
The bank's dividend had been as high as 49 cents per share before the financial crisis. It last paid a one cent a share dividend in February 2009. That was down from 16 cents per share in November 2008.
JPMorgan said last week it would increase its quarterly dividend to 25 cents a share from 5 cents. Wells Fargo & Co. raised its dividend to 12 cents, while U.S. Bancorp increased its dividend to 12.5 cents a share.