Cutting the dividend is about the last thing a CEO will do; it signals that the firm desperately needs to conserve/raise capital. Pandit was dealt a very bad hand, but he is doing all the right things. Too little, too late, I fear. Look for asset writedowns of $20 to $30 billion in the coming days. Staggering numbers.
That’s true — but Citi is there at the “last thing” stage.
Back last fall, when the size of the cash crunch started to become apparent (ie, during the second “Oops” call, the one which got Prince sacked), people were asking Chuck Prince whether Citi would cut its dividend.
Prince replied “No way.”
This level of stupidity is one of the reasons for the loss of confidence in Citi’s management.
The stock currently has a yield of over 7%, which is simply too high. Everyone knows it is too high, and that the company needs to conserve cash, or the only other alternative is to keep peddling new shares (or warrants or converts), which results in shareholder dilution.
Slashing the dividend by half would save about $5 billion per year.
Given where they are, Pandit doesn’t have many responsible choices besides slashing the dividend.
Here’s an interesting side-note on this very topic: There was one analyst who was smart enough and had dug into Citi’s books deeply enough to predict this back in November (ie, that Citi would end up having to slash the dividend by half): Meredith Whitney.
She’s received death threats as a result of her insightful analysis.
One wonders what some people on Wall Street are smoking when the one analyst who has done her homework and come to the correct conclusion receives intimidation as a result of making the right call in the midst of the crowd of sell-side analysts doing a flawless imitation of a bunch of sheep.