Citigroup (C) can omit from its annual meeting a question for shareholders that would require the lender to explore breaking up, the Securities and Exchange Commission said.

The SEC's Office of Chief Counsel agreed with Citigroup that the proposal, submitted by Trillium Asset Management LLC, was vague enough that shareholders wouldn't know what actions it required, according to an SEC letter to the bank dated March 12.

Some investors and analysts have questioned whether the largest banks would be worth more if broken up into smaller businesses. Citigroup trades at a discount to tangible book value, a measure of the firm's liquidation value.

"We were surprised and disappointed, but we hope to continue the conversation about the best way for Citi to unlock value for its shareholders," said Seth Magaziner, a bank analyst at Boston-based Trillium.

The proposal called for a committee to explore "extraordinary transactions" that would increase shareholder value, even those that separated the bank's businesses.

"I am just flabbergasted the SEC would not even allow this proposal on its ballot," Michael Mayo, an analyst at CLSA Ltd., said today in an interview on Bloomberg Television's "Lunch Money" with Stephanie Ruhle and Adam Johnson. "This is not a good move for shareholder rights."

Citigroup has already sold more than 60 businesses and cut assets in its Citi Holdings division, which houses unwanted units and securities, by more than $600 billion, Shannon Bell, a spokeswoman for the New York-based bank, said in a statement.

"Today Citi is a simpler, safer and stronger institution that has returned to the basics of institutional and consumer banking," Bell said. "Citi's management, along with its board of directors, is committed to regularly reviewing its strategic alternatives for maximizing shareholder value."

Dow Jones Newswires reported the contents of the SEC letter earlier today.

The SEC said last week that Goldman Sachs Group Inc., the sixth-largest U.S. bank, couldn't omit a shareholder proposal calling for an independent chairman of its board of directors.

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