Morgan Stanley thinks Citi will cut its dividend. CIBC thinks Citi will cut
its dividend. And according to Alea, the
markets think Citi will cut its dividend, too:
Based on implied forward prices derived from options markets, a 40% dividend
cut is priced in,that would be 32 cents per share down from 54 cents.
Clearly, if Citi is going to cut its dividend, it should do so sooner rather
than later, especially if a dividend cut is already priced in to the markets
and therefore wouldn’t hurt the share price very much.
An early decision by Win Bischoff to cut the dividend (I think such decisions
are made by the board, not by the CEO) would have the added benefit of forcing
the markets to take Citi’s new management team seriously. It would solidify
Bischoff’s reputation as a Citi-saver, too: remember that it was while Bischoff
was CEO that he orchestrated another deal to boost Citi’s capital, the ADIA
investment.
What’s more, the risk of a dividend cut is clearly helping to keep the share
price depressed: with a dividend cut behind them, Bischoff and Pandit could
almost certainly see much more upside to Citi’s stock. They should cut the dividend
once, and cut it by a large enough amount that there’s very little risk they’ll
have to cut it again. Then they can get cracking on internal issues.