Shares of Citigroup (NYSE: C) slid nearly 6% during Wednesday’s after-hours session after the Federal Reserve said the bank’s plans to deal with another market meltdown are not robust enough, rejecting Citi’s plans to boost dividends and share buybacks in the process.
Citi shareholders, suffering with a quarterly dividend of just a penny per share for three years, will apparently have to live that meager payout until the bank can prove to the Fed it can adequately cope with another financial crisis type of scenario. “The Fed also blocked plans for higher dividends or share buybacks submitted by the U.S. units of HSBC (NYSE: HBC), RBS (NYSE: RBS) and Santander (NYSE: SAN) due to weaknesses in their capital planning processes,” Reuters reported.
Citi’s disappointing news and that of the aforementioned European banks comes as investors are expecting increased buybacks and dividends from scores of major banks that call an array of financial services ETFs home. [Bank ETFs for Growing Dividends]
Of nearly 900 equity-based ETFs tracked by S&P Capital IQ, the research firm notes 15 feature Citi among their top-10 holdings. The Financial Select Sector SPDR (NYSEArca: XLF), PowerShares KBW Bank Portfolio (NYSEArca: KBWB) and the RevenueShares Financials Sector Fund (NYSEArca: RWW) have weights to Citi of 5.55%, 7.9% and 6.73%, respectively.
However, each ETF is chock full of banks that are expected to announced higher dividends as each fund is loaded with banks that aced the Fed’s recent stress tests. That is a sign the Citi news, while bad, should hamper those ETFs and others like them too much. [Big Day for Bank Dividends, ETFs]
The iShares Global Financials ETF (NYSEArca: IXG) could be a different ballgame. Although not at significant weights, HSBC, Citi and Santander are all top-10 holdings in the $303.7 million IXG. Throw in RBS and the four stocks combine for 7% of IXG’s weight, according to iShares data.
Lingering concerns about the abilities of select European banks to withstand crisis conditions could prove more problematic for the iShares MSCI Europe Financials ETF (NasdaqGM: EUFN). The $481.5 million EUFN is up 6% since the start of February due in part to expectations that European banks would be significant contributors to the continent’s dividend growth this year. [Betting on European Banks]
HSBC, Santander and RBS combine for nearly 16% of EUFN’s weight. The ETF has a trailing 12-month yield of just 1.55%.
iShares MSCI Europe Financials ETF
