When are these two major US banks going to announce their first stock splits?
The first big news on Monday was the US Treasury’s decision to halt its $20bn in asset sales to hedge fund managers.
However, other banks are expected to follow suit.
The news that Citigroup is planning to split its stock was first reported by The Wall Street Journal and is a direct result of the Federal Reserve’s $700bn quantitative easing programme.
The decision was made in part to provide more liquidity for banks by easing their capital requirements, which in turn will allow them to cut costs and cut back on spending.
As well as being a boon for banks, the Fed programme also allows the US government to buy up its debt as collateral to cover the $700 billion it is now issuing.
The Treasury will now be able to print money to cover those liabilities, which could allow it to raise money faster and at lower cost than it otherwise would.
The second major move in the news was the news that the US Federal Reserve is considering a $4.5tn plan to buy the majority of the assets of the US’s largest banks.
This announcement is not expected to be announced until after the Fed meets in mid-March, although the timing is unknown.
The move comes as US banks continue to suffer from low levels of lending as a result of weak economic conditions, as well as concerns about the health of the financial system.
According to Bankrate.com, the average US bank has been issuing $7.7bn in cash to its customers this year.
This is down from $14.2bn in 2017 and is the lowest in more than a decade.
While the number of US banks with less than $1bn in assets has fallen to just six, the number has risen to more than half.
“The banks have been in a bit of a bind,” said Andrew Jackson, chief investment officer at B&R Capital Markets.
“They are looking at their cash balance and saying, ‘I need to raise more cash, but there is no cash coming in.
So I have to sell some assets, but they are so expensive that they just aren’t worth it’.”
Jackson said the lack of cash was affecting the bank’s ability to invest in infrastructure and acquisitions, as it was forced to reduce its spending in the face of low rates of return.
“They need to make investments, but the market is not willing to take that risk,” he said.
While this could be a temporary blip, the risk is that the banking industry will see its finances suffer in the future, according to Paul Hickey, a senior analyst at RBC Capital Markets in London.
“I don’t think they will be able draw on that liquidity to sustain operations,” he told Business Insider.
“I think they are in a position where they are not able to operate at a pace that they would want to at the end of this year.”