updated 3/21/2011 12:02:38 PM ET 2011-03-21T16:02:38

Citigroup plans to reinstate a quarterly dividend of a penny per share in the second quarter after launching a 1-for-10 reverse stock split.

Monday's announcement comes three days after the U.S. Federal Reserve cleared the way for major lenders to increase their dividends. Banks had been forced to cut their dividends to preserve cash after the financial crisis that peaked in September 2008. That was a condition of the government's massive bank bailout package.

The Fed's move last week was seen as a sign of the industry's return to health, and some banks quickly announced plans to raise their dividends and buy back shares.

"Citi is a fundamentally different company than it was three years ago," CEO Vikram Pandit said in a statement. "The reverse stock split and intention to reinstate a dividend are important steps as we anticipate returning capital to shareholders starting next year."

As a condition of the rescue, Citigroup cannot pay quarterly dividends to shareholders of more than 1 cent a share until 2012 unless it obtains consent from the three federal agencies — the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp.

Citigroup received $45 billion in taxpayer support late in 2008. The government has now recouped all of that.

Free from the government's hand, Citigroup has been working to please the bank's other shareholders. Citi has focused much of its energy in the past two years on cutting off parts of its businesses that don't fit with its main banking operation.

The bank's dividend payment had been as high as 49 cents per share before the financial crisis. It last paid a one cent a share dividend in February 2009. That was down from 16 cents per share in November 2008.

Citi expects the reverse stock split will be effective on May 6. This will reduce the number of outstanding shares of Citigroup from about 29 billion to 2.9 billion.

Several banks have already moved to increase their dividends following Friday's announcement by the central bank. JPMorgan Chase & Co. said it would increase its quarterly dividend to 25 cents a share from 5 cents. Wells Fargo & Co. raised its dividend to 12 cents, while U.S. Bancorp increased its dividend to 12.5 cents a share.

JPMorgan also said it would buy back $15 billion of its own stock. Wells Fargo said it would buy 200 million shares and U.S. Bancorp announced a buyback program of 50 million shares.

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