Citigroup and the U.S. have reached an agreement

Discussion in 'Trading' started by blackbook, Feb 26, 2009.

  1. in which the government will substantially increase its stake in the bank and in return will demand a boardroom shakeup...
  2. This shouldn't shock the market. It is old news.

    It is just going to massively dilute the common shares.
  3. how much more is this going to cost us taxpayers? Loved the extra 750 billion set aside in the budget today
  4. Illum


    This article says 25 Bill, however........they expect private capital.. um lulz. How do you get that without backstopping this trash with More Money wheeeeeee

    I know Dick Bove wants buy hand over fist, who else? Bueller.. Bueller...

    Citigroup Inc. and the U.S. are close to an agreement in which the government will substantially increase its stake in the bank and will demand a boardroom changes in return, according to people familiar with the matter.

    The deal, expected to be announced Friday morning, is designed to ease jitters about the soundness of one of the world's largest financial institutions. Under terms being finalized late Thursday, the Treasury has agreed to convert some of its current holdings of preferred Citigroup shares into common stock, a move that could better protect shareholders against future losses.

    As a condition, the government is demanding that the New York company overhaul its board of directors, the people said. Treasury will call for Citigroup's board to be comprised of a majority of independent directors. Chief Executive Vikram Pandit is expected to keep his job under the agreement.

    The government will convert its stake only to the extent that Citigroup can persuade private investors such as sovereign wealth funds do so as well, the people said. The Treasury will match private investors' conversions dollar-for-dollar up to $25 billion.

    The size of the government's new stake will hinge on how many preferred shares private investors agree to convert into common stock. The Treasury's stake is expected to rise to up to 40% of Citigroup, the people said.

    An agreement would mark the third time since October that Washington has come to Citigroup's rescue. Twice last fall, the government pumped a total of $45 billion into the company, and also agreed to protect Citigroup against most losses on $301 billion of assets. That gave the U.S. a 7.8% stake in the company.

    Since then, the government has pressured Citigroup to partially break itself up by selling big chunks of its businesses and to overhaul its board. But U.S. ownership has also created a murky situation in which it is unclear who is in charge, leaving Citigroup executives often groping for guidance.

    The relationship has become fraught at times, prompting President Barack Obama and some lawmakers to chastise Mr. Pandit and his management team.

    The conversion will come at the most-favored price, meaning the government will get the best price of the private shares that are converted. Citigroup has already begun talking with preferred shareholders about the conversion, people familiar with the matter said.

    The conditions imposed by the government were hammered out over a week of negotiations. They are designed to make up for the fact that taxpayers will bear greater risk holding common stock rather than preferred. The common shares also won't pay dividends, unlike the preferred stock.

    While the government isn't injecting additional taxpayer dollars into Citigroup, the agreement will help the company by boosting a key financial metric known as tangible common equity, which essentially measures what shareholders would have left if the company were liquidated. The government and banks have concluded that beefing up tangible common equity was a key to arresting the downward spiral in financial companies' shares.

    The Citigroup deal has been closely watched not only due to its importance to Citigroup's financial health, but also because it is expected to serve as a model for future bank rescues.

    By reaching a deal, Citigroup is getting ahead of a round of bank examinations the Obama administration has launched to determine the health of the nation's largest banks, according to a person familiar with the matter. Those that fail will be required to raise more capital or accept additional federal bailout funds.

    Citigroup will still have to endure the so-called "stress test," which examines banks' ability to withstand various chilling economic scenarios, and could be required to raise additional capital.

    Details of the Citigroup-U.S. pact remain unclear. Chief among those uncertainties is the price the government will pay, because it depends largely on the position taken by private investors. Citigroup shares closed Thursday at $2.46 in New York Stock Exchange trading.

    Also unclear is exactly what boardroom changes the government is seeking. Citigroup's 15-person board is already comprised primarily of directors who are considered independent of the company. In fact, three of the four directors who are not independent have already announced plans to step down this spring.

    Citigroup Chairman Richard Parsons has been scrambling to lure new directors. That has proven an uphill battle, with two candidates Citigroup approached rebuffing the overtures, according to people familiar with the matter.
  5. they have reached an agreement whereby the government will continue to piss an incalculable and tremendous amount of cash on them. In return, Citi has promised to continue holding the entire financial system hostage.

    I'd be surprised if the Dow didnt break 15,000 tommorow!!
  6. non-event right? coupled with the GDP report, C down 28%, SP breaks 741 support, dow came hairs away from 7k (7033)... although we've made a nice comeback lets see where the day takes us.
  7. is the Saudi prince's stake protected at all? I believe his average cost per share was around $3/share, so is he underwater now or does he have some sort of special protection?
  8. i thought his avg cost was $12.00 (USD)?
  9. he said about $3, maybe $2 a share, in a printed interview I read a while back. I can't remember where I read it. It was a long time ago so maybe his average cost changed since then
  10. #10     Feb 27, 2009