Citi to merge shares and pay dividend

CITIGROUP has joined the American bank stampede to hand capital back to shareholders following the Fed’s decision on Friday to remove its ban on dividend hikes.

The bank announced yesterday that it will reinstate a $0.01 quarterly dividend and, in a bid to ditch the stigma of being a “penny stock”, will implement a reverse stock split, whereby it turns every ten current shares into one new share without any change in net value.

The action will see 29bn Citi shares condensed down into 2.9bn overnight, with the price likely to go from around $4.40 to $44. Those left with “fractional shares” will be given cash instead.

But some investors expressed scepticism, saying that shares subject to reverse stock splits tend to under-perform because the underlying issues keeping the share price down are not affected by the action.

Matthew McCormick of Bahl & Gaynor Investment Counsel said: “It’s not enough for me to express interest in the stock.”

Citi chief executive Vikram Pandit appeared to be using the announcement to signal that Citi has moved on from the financial crisis.

“Citi is a fundamentally different company than it was three years ago,” he said. “[These moves] are important steps as we anticipate returning capital to shareholders starting next year.”

Citi is one of the last major US banks to make an announcement on its dividend.

JP Morgan has hiked its quarterly dividend five-fold to $0.25 and announced plans to buy $15bn of its own stock, while Goldman will re-purchase $5bn of shares sold to Warren Buffet’s Berkshire Hathaway during the crisis.