DIVIDEND DRAMA DRIVES CITIGROUP DOWN
Citigroup’s world was rocked yesterday after a raft of Wall Street analysts recommended dumping the financial colossus’ stock amid doubts about the bank’s short-term prospects, including the possibility that Citi might have to cut its dividend and raise capital.
The moves appeared to shock investors, who sent Citi’s stock down 6.89 percent, or $2.85, to $38.51. For the year, the bank’s shares are off just over 30 percent.
Like clockwork, the pounding suffered by investors began another round of trading-desk speculation about when Citi would replace Chief Executive Chuck Prince.
Compounding what ordinarily would be bad-enough news, the downgrades came on another day of billion-dollar-plus subprime and collateralized debt obligation charge-offs from Citi’s rivals GMAC and Credit Suisse, once again reminding investors of Citi’s considerable exposure to these troubled bonds.
CIBC bank analyst Meredith Whitney led the downgrade charge, arguing that her “sell” recommendation was based on the likelihood of Citi needing to reduce its dividend in order to bolster its sagging capital ratios.
Indeed, the bank’s Tier 1 capital ratio – the regulators’ preferred measurement of a bank’s ability to generate cash to cover costs – dropped to 7.4 percent from 8.64 percent.
Part of that decline can be blamed on the bank’s buying spree.
As Citi has digested $25 billion in acquisitions over the past 18 months, its assets have grown sharply just as its earnings growth have slowed, sending key capital ratios to multi-year lows.
While Citi has been roundly criticized for years for its failure to generate earnings growth, questioning its financial health is new – and to many, controversial.
“I agree 100 percent with [CIBC’s Whitney] that this is a poorly run company, but her assertions are wrong,” said a New York hedge fund manager who told The Post that he bought Citi stock yesterday. “Citi is an earnings generation machine that throws off over $20 billion in free cash flow.”
Morgan Stanley also put out a “sell” recommendation, while Credit Suisse reduced its rating to “neutral.”
A Citi spokeswoman declined to comment, citing corporate policy.