Should Citi Cut its Dividend?
Holman Jenkins has a most peculiar column today which seemingly tries to defend Citigroup’s decision to continue paying dividends, even as it’s raising billions of dollars of capital elsewhere. Except he never quite comes out and says that Citi is doing the right thing: the best that he can come up with is that it’s possible that Citi is doing the right thing. And even getting there is something of a stretch. Holman has two main premises. Both are true, as far as they go, but neither does a particularly good job of getting him to where he wants to go. 1) Money is money. Whether banks are wiser to replenish their depleted capital by retaining income now used to pay dividends, or wiser to raise the capital from outside and keep paying the dividend, depends on which is a cheaper source of capital. 2) Money is money. Whether a company retains its earnings or pays them out, shareholders are still the beneficiaries of its cash, and shareholders are not so dumb they can’t figure this out. The
