By John Carney
Citigroup Inc. got the green light from the Federal Reserve to buy back up to $1.75 billion more of its own stock.
The new buyback program is in addition to the $8.6 billion of buybacks announced earlier this year as well as the bank's quarterly common stock dividend of 16 cents a share. If Citigroup completes all of its announced buybacks and the dividend payment, it will have returned $12.2 billion of capital to shareholders in the four-quarter capital planning cycle ending in the second quarter of 2017, the bank said on Monday.
Shares of Citigroup, among the most globally-focused of the big U.S. banks, have lagged behind its more domestically-oriented peers since the presidential election. The bank's shares were trading at 0.74 times book value on Monday morning, compared with 0.83 times at Bank of America, 1.21 times at J.P. Morgan Chase & Co. and 1.48 times at Wells Fargo & Co.
Shares of all the big banks have seen a sharp rise since election day.
The Fed's approval of Citigroup's request could boost investor hopes for other banks viewed as having "trapped capital," particularly Bank of America.
"We believe Citi's announcement could help other large-cap bank shares on the prospect of their own incremental buybacks," Wells Fargo & Co. banking analyst Matthew Burnell wrote in a note Monday morning.
The increase brings Citigroup's payout ratio, its dividends and buybacks as a share of earnings per share, to 82%, according to Mr. Burnell. If the announced buybacks are completed, Mr. Burnell projects they would reduce the bank's common equity tier 1 ratio to 12.0% in 2017, down from a forecast of 12.2%. The bank said it had a 12.6% ratio in the third quarter of 2016.
Back in October, Citigroup Chief Executive Michael Corbat said, "We remain committed to consistently increasing the amount of capital we return to our shareholders in order to improve overall returns." In the past two years, the bank has lowered its shares outstanding by 6%, Citigroup noted.
The biggest U.S. banks must submit capital actions such as buybacks and dividend increases to the Federal Reserve, which evaluates the plans in connection with its annual stress tests. Banks are allowed to submit requests for additional capital distributions, including buybacks, after the initial approval of their plans each year.
Citigroup said it received a "non-objection" from the Fed -- which is Fed speak for approval -- to the increased buyback plan.Write to John Carney at email@example.com
(END) Dow Jones Newswires
November 21, 2016 11:52 ET (16:52 GMT)
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