Citigroup Inc (NYSE:C) received the regulator’s nod to hike its dividend payout by 400%. The bank will also buy back shares. The steps follow the bank’s passing of the famous “stress test” for 2015. Citigroup failed the test last year, thwarting its efforts to raise dividend and leading the CEO, Michael Corbat, to say he would step down if the bank failed this year.
The passing of the Fed stress test comes as a huge relief Corbat and the entire Citigroup Inc (NYSE:C) fraternity, including shareholders. If the bank failed this year’s test, it would have been its third failure in four years and pressure would have been huge on the bank’s leadership.
The so-called stress test is administered to 31 global banks that have major operations in the U.S.
400% hike in dividend
Having passed the important regulatory test, Citigroup Inc (NYSE:C) has secured approval to hike its annual dividend payout to $0.05 a share, up from $0.01, representing 400% increase. So far, Citigroup’s 400% hike in dividends appears to be the sharpest among the major banks in the U.S. that have already disclosed their new dividend plans.
In addition to sweetened dividend payout, Citigroup also got the green light to repurchase some of its shares. The bank will repurchase $7.8 billion worth of its shares, which also seems to be the largest buyback among its peer.
Corbat was worried about failing the Fed test again this year. Following last year’s failure, he promised to try hard and get things moving in the right direction so that Citigroup Inc (NYSE:C) doesn’t fail again. However, he left the options open that if he failed, he would voluntarily terminate his tenure at the bank. Corbat asked a key lieutenant in the person of Gene McQuade to delay his retirement and stay on so that they focus on getting Citigroup to pass this year’s test.
Will it be a routine event?
While everyone is celebrating at Citigroup Inc (NYSE:C) after the bank excelled in the regulatory exam, it remains to be seen whether passing stress tests will now become a routine. Citigroup is offloading as international assets, especially retail operations as part of the efforts aimed at streamlining the bank and making it more profitable.