Citi

Pathetic if you're thinking about investing, maybe. Beautiful for traders.

 

Scriabinop,

Can you please tell me where you found those TCE figures?

Very interested - thanks in advance for any help you can provide

 

Tangible common equity (TCE)

http://www.bloomberg.com/apps/news?pid=20601087&sid=anGxzRYhVF_Y&refer=home

Feb. 23 (Bloomberg) -- The Obama administration, which says it doesn’t want to nationalize U.S. banks, may find itself taking a step in that direction if it converts the government’s preferred shares in Citigroup Inc. into common equity to help the firm withstand losses.

Citigroup and rival Bank of America Corp., beaten down in New York trading last week on U.S.-takeover speculation, are among more than 20 lenders that could wind up majority-owned by the government if such conversions took place. Executives at New York-based Citigroup have discussed the change as a way to quell concerns about capital adequacy while heading off all-out nationalization, according to a person familiar with the matter. Citigroup rose 25 percent to $2.44 in German trading today.

“Conversion would make a lot of sense for the banks that are struggling with their tangible common equity ratio, because they cannot go out today and raise common,” said Gerard Cassidy, an analyst at RBC Capital Markets in Portland, Maine, referring to a measure of a lender’s ability to absorb shocks.

Citigroup is talking to regulators about expanding the U.S. stake to as much as 40 percent, the Wall Street Journal reported, citing unidentified people familiar with the situation.

Treasury Secretary Timothy Geithner is poised to announce details of a new “stress test” for the nation’s largest banks this week. The test will determine which firms should hold an extra buffer of capital to withstand a more severe economic climate, according to a person familiar with the Obama administration’s plans. Those that fail will be given additional support, said the person, who declined to be identified because the policy hasn’t been announced.

‘We Are Open’

Financial firms can apply to convert U.S. preferred stakes into common equity “to strengthen their capital structure,” said Treasury Department spokesman Isaac Baker, who declined to comment on specific banks. “We are open to considering a request to do so if the institution and it’s regulator believe it would promote the long-term stability of that institution, and if we believe it’s in the best interest of long-term stability of our economy and financial system,” Baker said.

The idea of nationalizing banks has gained traction in recent weeks as Nouriel Roubini, the economist and professor at New York University’s Stern School of Business, Republican Senator Lindsey Graham of South Carolina and former Federal Reserve Chairman Alan Greenspan all suggested it as a solution to banks’ woes.

Senate Banking Committee Chairman Christopher Dodd said in a Jan. 20 interview with Bloomberg Television that “short-term” government takeovers may be unavoidable.

Step One

Bank shares plummeted last week, with Citigroup sinking in New York trading to an 18-year low of $1.95. Bank of America fell to $3.79, the lowest price since 1984.

“Nationalization has become part of the public debate, and that’s the first step,” said Paul Miller, an analyst at Friedman, Billings, Ramsey Group Inc. in Arlington, Virginia, who added that the U.S. is moving “faster than people think” toward government control.

“This is the only way out,” Miller said. “Losses are just going to accelerate in the next couple of quarters. The holes in these banks are just too big.”

By converting its preferred shares to common, the government could pad too-thin tangible common equity, or TCE, ratios. TCE strips out intangible assets, goodwill -- the premium above net assets paid for acquisitions -- and preferred stock, including shares issued to the U.S. Treasury. The ratio measures TCE against tangible assets.

Preferred Stakes

Such conversions could be imposed unilaterally under terms of the Troubled Asset Relief Program passed by Congress last fall, which has so far appropriated $300 billion to banks, insurers and credit card companies. Changing the government’s preferred holdings to common shares would provide a cash infusion to a bank’s lowest tier of capital, boosting its first line of defense against losses.

Preferred stock “is not seen in the investment community as protection against losses,” said Anthony Davis, an analyst at Stifel Nicolaus & Co. in Florham Park, New Jersey. The stock is more senior in the capital structure than common shares, so “loan-loss reserves and tangible common equity are the first line of defense,” he said.

The government holds $52 billion of preferred shares in Citigroup, five times the bank’s market value as of Feb. 20. If the U.S. were to convert all of its holdings into common shares, it would own more than 80 percent of the company.

Regions, Fifth Third

Charlotte, North Carolina-based Bank of America, which has received $45 billion in TARP funds in exchange for preferred shares and warrants, would be 66 percent owned by the government if its entire stake were converted to common equity, according to data compiled by KBW Inc., a New York-based investment bank. The figure would be 69 percent at Regions Financial Corp. in Birmingham, Alabama, which has received $3.5 billion from the U.S. It would be 83 percent at Fifth Third Bancorp, the largest Ohio- based lender, which got $3.4 billion.

KBW calculated the government stakes based on a conversion price of 80 percent of the stock’s value as of Feb. 5.

Bank of America, Citigroup and Wells Fargo & Co. in San Francisco are among more than 400 financial institutions that have received cash in exchange for preferred shares under the program. They now face increased scrutiny from regulators and investors, who are focused on their tangible common equity.

Lewis Speaks Out

Bank of America, the largest U.S. bank by assets, said in January that its tangible common equity was 2.83 percent of tangible assets. At Citigroup, it’s only 1.5 percent, according to estimates from Goldman Sachs Group Inc. analysts led by Richard Ramsden. JPMorgan Chase & Co., based in New York, has tangible common equity equal to 3.8 percent of tangible assets.

Institutions have “some discretion” as to what their TCE ratios are, although lenders with tangible common equity below 3 percent of assets should consider raising more capital, said James Barth, a former chief economist at the Office of Thrift Supervision and now a professor of finance at Auburn University in Alabama.

{snip}

 

Citi is down from approx 2.40 to approx 2.20 from 6.20am to 6.40am, probably based on Gasparino report on CNBC.

Does anyone have detail on what information he has?

 

Pre-market C trading is at 1.9x

 

Quite an impressive range for the stock, and it's not even 8am ET as yet

 

CNBC's Gasparino:

Conversion of preferred stock to common to be announced later today or tomorrow.

Govt stake to be closer to 40% (than 25%)

 

All this posturing is hurting the markets i.e. volume, get on with it already.

 

What will happen to the stock if citi is partially nationalized ( say 40%) or wholly nationalized ( 100%) ?

And if I hold a put option of citi, if it is wholly nationalized, will I profit or will I get nothing ?

 

http://biz.yahoo.com/bw/090227/20090227005295.html?.v=1

Transaction Does Not Involve Additional U.S. Government Investment


[m22au comment: yes, but the conversion price is $3.25 !]

NEW YORK--(BUSINESS WIRE)--Citi today announced it will issue common stock in exchange for preferred securities, which will substantially increase its tangible common equity (TCE) without any additional U.S. government investment. The transaction is intended to build Citi’s TCE to a level that removes uncertainty and restores investor confidence in the company.

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Citi will offer to exchange common stock for up to $27.5 billion of its existing preferred securities and trust preferred securities at a conversion price of $3.25 a share. The U.S. government will match this exchange up to a maximum of $25 billion face value of its preferred stock at the same conversion price. (See attached transaction summary).

Citi Chief Executive Officer Vikram Pandit said, “This securities exchange has one goal – to increase our tangible common equity. While we believe Tier 1 capital remains the most important measure of the financial strength of banks, we recognize that the markets also view Tangible Common Equity as an important measure. This transaction – which requires no additional investment from U.S. taxpayers – does not change Citi’s strategy, operations or governance. 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.”

This transaction could increase the TCE of the company from the fourth quarter level of $29.7 billion to as much as $81 billion, which assumes the exchange of $27.5 billion of preferred securities, the maximum eligible under this transaction. Citi’s Tier 1 capital ratio is 11.9 percent as of December 31, 2008, and is among the highest of major banks. This ratio is not impacted by this transaction.

Based on the maximum eligible conversion, the U.S. government would own approximately 36 percent of Citi’s outstanding common stock and existing shareholders would own approximately 26 percent of the outstanding shares. All investors’ new stakes will be determined following the exchange.

Citi will offer to exchange:

* Interim securities and warrants for privately held convertible preferred securities;
* Interim securities and warrants for U.S. government-held preferred securities; and
* Common stock for publicly held convertible and non-convertible preferred securities.

The interim securities will convert to common stock, subject to shareholder authorization of the additional common stock needed for the transaction. The interim securities are common stock equivalent. The warrants entitle the holders to purchase shares of Citi common stock at $0.01 a share if such shareholder authorization is not obtained. If shareholder authorization is not received, the interim securities will pay a 9 percent dividend that will increase quarterly.

The non-U.S. government exchange will accommodate all preferred stock holders other than trust preferred holders. The Government of Singapore Investment Corporation (GIC), HRH Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud, Capital Research Global Investors, Capital World Investors and other investors have said they will participate in the exchange. Depending upon the participation rate in the exchange, holders of Trust Preferred Securities (TruPs) and Enhanced Trust Preferred Securities (ETruPs) may also be eligible to participate.

The U.S. government will exchange the portion of its existing preferred securities that is not exchanged for common shares into new trust preferred securities. These securities will carry an annual coupon of 8 percent.

In connection with the transactions, Citi will suspend dividends on its preferred shares. As a result, the common stock dividend also will be suspended. The company will continue to pay the distribution on its Trust Preferred Securities and Enhanced Trust Preferred Securities at the current rates.

The company will host an investor conference call today at 8:30 am (EST). Dial-in numbers for the conference call are as follows: US & Canada: (877) 700-4194 / International: (706) 679-8401; Conference code: 88132598. A live webcast of the call will be available at Citi’s Investor Relations website: http://www.citigroup.com/citi/fin.