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Text size [+][-]  Friday November 20 2009GLOBAL EDITION

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01 May 2008 06:39

Capital Citi

By Richard Beales
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Late last year, Citigroup sold $7.5bn of mandatory convertible securities to the Abu Dhabi Investment Authority and issued more than $4bn of trust preferred securities. In the first quarter this year, the bank sold more than $15bn of convertible preferred shares and $3bn-plus of straight preferreds. In April, the company issued $6bn of hybrid preferred securities and, most recently, $4.5bn of common stock.

The total exceeds $40bn, of which more than $36bn requires payment of a coupon, at an average annual rate above 8%, until those securities that are convertible switch into common stock - a total cash flow burden of some $3bn a year.

The company’s dividend was $2.16 a share in 2007, approaching $11bn in all. The quarterly per-share dividend was slashed 41% to 32 cents a share in January.

The US bank’s shareholders have been losing a game of financial strip poker. Citi has removed layers of the cash flow that used to cover them, as well as slashing its dividend. Even if profits recover, payments on new capital will prevent the old payout coming back.

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