by Jim Puzzanghera
The Obama administration announced this morning that it would increase its ownership stake in Citigroup as it tries to keep the struggling financial giant afloat.
The Treasury Department said it has offered to convert up to $25 billion of the government's $45 billion in preferred stock into common stock at Citi's request. The move would require no additional money from the federal government, but would improve the company's balance sheet as it tries to weather the recession and billions in toxic assets on its books.
"Citigroup is planning to strengthen its capital structure through conversion of a significant portion of its preferred securities to common equity in a series of exchange offers," the Treasury Department said in a statement.
The deal is contingent on Citi reaching a similar deal with other preferred shareholders. Treasury would convert its preferred shares to match the amount that other preferred shareholders convert, up to $25 billion, at the most favorable terms which any other shareholder reaches.
Citi said the U.S. would convert its preferred shares at a price of $3.25 for each common share. The stock closed Thursday at $2.46 per share.
Citi said this morning the deal would boost the government's ownership stake in the company to 36%. Citi Chief Executive Vikram Pandit will remain in his job, but the Treasury Department said the company board will be altered "as soon as feasible" so that a majority will be new, independent directors.
"This transaction - which requires no additional investment from U.S. taxpayers - does not change Citi's strategy, operations or governance," Pandit said in a written statement. "Our clients and partners will not be affected and will continue to receive the high level of service they expect from Citi around the world."
The goal of the transaction is to boost Citi's "tangible common equity," a key measure of a bank's capital. Citi said the deal would increase its tangible common equity to as much as $81 billion, up from $29.7 billion at the end of last year.
Like other large banks, Citi is participating in Treasury's new stress tests to determine if it has enough capital to withstand worse-than-projected economic conditions over the next two years.
The Treasury Department said that Citi would be allowed to apply to convert more of the government's preffered shares into common equity if the company needs more capital.
Comments
We can now add another talent to ex-President Bush's resume: poster-boy for ' socialism " !! Geez, just when you thought, what a well-rounded resume, he fabricated, or bought, he adds another dimension to it. Is there no end to his talents !!! From Party destroyer, to economy destroyer, we can now add his name to the list of " socialists ", that Senator McCarthy was scouring our government for !! Thanks, Prez. Deceiver, we really got know ye !! Thanks for all the banks you left us with, we sure needed them !!
SUPPORT OUR TROOPS, BRING THEM HOME, ALIVE AND WHOLE. NOW.
Posted by: Don Fitzgerald, America | February 27, 2009 9:19 AM
This is a good move for the banking industry but govt should nominate one or two directors on the Board of Director with a proportioate of govt Stake after consultation and revision of some SEC rules. The nominee directors on such companies should be some technocrates or high officials in Govt in finance sectors.
Posted by: SYED ALAM | February 27, 2009 9:43 AM
....and Citi's stock lost 30% of its value as I write this...
Posted by: Kenny Bunkport ☯ | February 27, 2009 11:17 AM
Don, yes, Bush's legacy above all is: Barack Obama.
He helped make Barack's ascent possible.
Banks should be nationalized.
The masters of the universe proved they can't run them honestly.
If taxpayers are going to insure bank deposits and insure mortgages, then let the government make the risk assessments in the first place.
Added bonus: Barack would make them lower those ridiculous credit card rates.
Posted by: ornery | February 27, 2009 8:28 PM