Citi (C) CEO Vikrim Pandit has already commented on the dividend issue and as far back as early November I commented that I felt it would not be cut. Despite recent reports like the Goldman Sachs (GS) estimate of a 40% cut, recent events have only buffered my feelings on the subject.
Currently Citi pays just under $11 billion a year in dividends. Sounds like a lot until you consider in the last 12 months Citi earned almost $24 billion. My guess is that Pandit had no desire to be the guy who cuts the dividend. It would be construed as taking the easy way out, rather than trying to actually fix Citi’s issues. I have said repeatedly in the past he has $2.3 trillion in assets under his control and can easily sell chunks of them to raise capital if he needs it.
Thursday the Wall. St. Journal reported that Citi is looking at doing just that. Units rumored on the block include Student Loan Corp., which is 80 percent owned by the bank, its North American auto lending business, the Brazilian credit card company Redecard SA, in which Citigroup held a 24 percent stake as of Sept. 30 and its Japanese consumer finance business.
Pandit’s also is laying off about 20,000 employees as he streamlines operations. Now, the current list of items for sale is just the beginning and the “low hanging fruit”. In his first interview as CEO Pandit did say regarding possible asset sales “all options are on the table”. He was far less open to a dividend cut saying “the board has spoken on that and the dividend is where it is”.
Do I think the dividend will be raised in 2008? not by a long shot. But sitting here getting over 7% taxed a 15% is a real nice deal while we wait for this thing to shake out.
Financials are a huge opportunity here, for investors with the right time frame and temperament.
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