I wonder if this will became the norm for most banks. If thats so PGF got it right and pimco got it wrong
My comment: US Govt offers to exchange up to $25 billion. Non US Govt to exchange up to $27.5 billion. Total possible conversion amount is $52.5 billion. Conversion price is $3.25 Total possible common equity to be issued is 52.5 billion / 3.25 = 16.15 billion shares Current shares outstanding is 5.45 billion according to Yahoo Total possible shares outstanding to grow to a possible 16.15 + 5.45 = 21.60 billion. Current common shareholders to own 5.45 shares out of 21.60 billion shares. Press release says: Based on the maximum eligible conversion, the U.S. government would own approximately 36 percent of Citiâs outstanding common stock and existing shareholders would own approximately 26 percent of the outstanding shares. All investorsâ new stakes will be determined following the exchange. Assuming maximum conversion: US Govt to own 36% of common stock Non US Govt preferred / trust preferred owners to own 38% of common stock Existing common stockholders to own 26% of common stock. Total = 36 + 38 + 26 = 100%
The funny thing is - last weekend I thought the US Govt would be more generous than the UK Govt with future bailouts. However we saw yesterday with the RBS bailout that the UK Govt is providing insurance on very generous terms. Even though the conversion price is high ($3.25), the Citigroup announcement is very dilutive to existing common shareholders. It also means that it would be very difficult for the shares to get above $3.25.
Although this thread is titled "Citi", I'm thinking that an "investment" in BAC does not make much sense if the Citigroup template is used for conversion of BAC preferred stock (to common) in the weeks and months down the track.
One thing I forgot earlier - which Alexis Glick reminded me of - the $20 billion from the November bailout (plus another $7 billion) will each convert into separate trust preferred securities with a coupon of 8% . So even though there is massive dilution, there is still another $27 billion in preferred that the Govt owns, that could also be converted at a later date. Assuming the same conversion price of $3.25, this would result in another 8.30 billion shares being issued, in addition to the existing: 16.15 + 5.45 = 21.60 billion shares. This would result in the US Govt owning (25 + 20 + 7) 52 billion / 3.25 = 16 billion shares out of 29.9, or a 53% stake in the common stock.
I think the government avoided going in the range of 50% for political reasons Everybody knows they will go there plus more
The main suspects on my screen are Banks C BAC RF FITB HBAN STI KEY USB WFC Insurers HIG PRU LNC AFL PFG MET ALL