The cost of a bailout continues to bite after a flunked stress test

 
Marc Sidwell
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CITIGROUP’S shareholders rejected chief executive Vikram Pandit’s $15m (£9.6m) pay award in March, amid complaints that it didn’t sufficiently reflect company performance. Yesterday, America’s third-biggest bank did its best to show them its performance was on the up. Its share price did rise, although only because things were less bad than feared.

The trouble is, back in March Citi also failed the Federal Reserve’s stress test. As a result, its near-term mission, as its presentation yesterday indicated, is “maintaining strong capital and liquidity levels”.

After its $476bn bailout, regulators will do everything they can to stop this systemically-important financial institution from taking more risks. Whatever the consequences for the global economy, that can’t be good for equity-holders’ returns. Pandit has mooted an increased dividend by the end of the year, but for now it remains an aspiration as the repairwork goes on.

It may have been a mistake for Pandit to agree to be paid $1 a year when things were at their worst. In Citi’s constrained circumstances, it might just give shareholders ideas.

Marc Sidwell is City A.M.’s managing editor