Meredith A. Whitney of CIBC World Markets, said Wednesday night that Citigroup (C) "might" be forced to cut its dividend or sell assets to head off what she said was a $30 billion capital shortfall. It won't happen anytime soon.
Citi currently pay a $2.16 annual dividend on almost 5 billion shares. Want to assure its safety? Stop the acquisition spending that has totaled $26 billion since the spring of 2006. Citi recently agreed to buy the rest of Japan's Nikko and today announced they are buying hedge fund Carlton Hill. Moves like this illustrate one of two things, they are running out of cash and are complete morons for continuing to spend it (not likely) or their currently liquidity is sufficient to accomplish both (more likely). Let's not forget, Citi will still earn $20 billion next year, plenty sufficient to pay the dividend.
If Citi is forced to cut the dividend CEO Chuck Prince might as well just stay home. Both the board, large shareholders like Prince Alweed that have backed him and Prince himself fully recognize this.
The possibility of a cut is primarily based on the assumption of further right-downs in the CDO market in Q4. Prince is on record publicly saying that "Q4 is looking much better that Q3".
If Citi cuts it dividend the pain will be felt across the financial sector. It just is not going to happen. The entire financial sector is getting crushed today with Bank of America (BAC), Goldman Sachs (GS), Wachovia (WB), Merrill Lynch (MER) and Lehman (LEH) all falling in excess of 3% in early trading.