Citi Maintains Future Dividend Payments Amid Coronavirus Woes

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Last week, the Federal Reserve released the results of Dodd-Frank Act supervisory stress test 2020 (DFAST 2020) conducted on 33 firms, which, to a great extent, reflect the stability of the banking system. The regulator has ordered banks to suspend their buyback programs for the third quarter of 2020 and also put a limit on dividend distributions. Notably, large banks are required to resubmit their payout plans later this year.

The board has capped dividend payments in a way that the common stock dividends should not exceed the amount equal to the average of the bank’s net income for the four preceding calendar quarters or otherwise as specified by the Fed.

Therefore, amid such a scenario, a number of large banks, including Citigroup C, JPMorgan JPM, Bank of America BAC and Goldman Sachs (GS), have maintained dividend payouts for the third quarter based on their capital stability, while some including, Wells Fargo WFC), might cut the same. Notably, JPMorgan’s CEO Jamie Dimon said, the bank might consider cutting its dividends if there’s a “significant deterioration in the future outlook.”

Specifically, among others, as required by the Fed, Citigroup is to maintain interim Stress Capital Buffer (SCB) of 2.5% for the four quarters from fourth-quarter 2020 through third-quarter 2021. Therefore, along with this a GSIB surcharge of 3%, the minimum regulatory requirement came in at 10% for the bank for both Standardized (using SCB) and Advanced (using the Capital Conservation Buffer – "CCB") Approaches. Remarkably, Citigroup’s Common Equity Tier 1 ratio was 11.2% using Advanced Approaches for the first quarter of 2020, indicating capital stability.

Per Michael Corbat, Citigroup CEO, “These results are consistent with our expectations, and indicate that we have the capacity to withstand extreme stress. The strength of our franchise has allowed us to support our customers, clients and communities around the world as we navigate through this crisis, while maintaining significant capital and liquidity. While we will continue to evaluate our planned capital actions relative to the most recent financial and macroeconomic conditions, we believe we are well positioned to continue to support our customers and the broader economy, while also continuing with our planned capital actions. The planned capital actions include common dividends of 51  cents per share in the third quarter and over the four quarters covered by the 2020 CCAR cycle (i.e., 4Q20 – 3Q21), subject to the latest financial and macroeconomic conditions."

Our Take

Citigroup continues to execute growth strategies, such as bolstering position in the booming digital industry and expanding its global market presence, thereby aiming to diversify revenue sources. Also, prudent expense management and inorganic expansion strategies encourage us. Moreover, a strong capital and liquidity position, along with a steady payment of future dividends amid the pandemic, will keep investors’ optimism alive.

The company has gained 19.4% in the past three months compared with 5.2% growth recorded by the industry.

The stock carries a Zacks Rank #3 (Hold), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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