Citigroup’s capital levels are way down. Part of this comes from a drop in the value of its asset base and part from a string of acquisitions that the bank has made.
A new analysis from research house CIBC reviewed by The New York Times points out that "Citigroup has spent more than $26 billion on acquisitions since spring 2006. That, on top of the $5.9 billion in losses and a 10 percent dividend increase in January, has strained its capital position." CIBC also cut its rating on Citi and said that its share price could fall another 28% from its current level of $42.
Citi has a yield of 5.1% on a dividend of $2.16. The company has almost five billion shares outstanding. A lot of money? Yes. JP Morgan’s (JPM) yield is only 3.3%.
Citi may not be able to solve problems in its mortage-backed loan pools or its near-distressed LBO debt. There may be more write-offs on those in the fourth quarter.
But, it could cut its dividend, and put that money toward its troubled capital base.
Douglas A. McIntyre
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