Yes you're right - and ultimately most market participants are in the dark as to what the conversion price will be. That's enough of a reason for me to avoid trading the C preferreds. However for anyone wanting to be cheeky, they could start doing their sums on BAC common and BAC preferred, and see if there is a trade to make there. As I have posted before, US govt stake = $45 billion and market cap of common stock is approx $19.8 billion.
What does not make sense is that the Term Sheet says "$3.25 at premium to market" WTF does that MEAN? Why say $3.25 if it's going to be a higher number? If it's 3.25 you get XX shares, period. Then, what does "at premium to market" mean? has anyone done the math to see how they arrives at the preferred ownership %'s? This is perplexing.
Daal / Bestfriend / rest of the world, Tyler Durden ("Zerohedge") has posted five updates to his excellent article about Citigroup common & preferreds: http://seekingalpha.com/article/123...preferred-may-be-problematic-too?source=yahoo http://zerohedge.blogspot.com/2009/02/reason-for-todays-persistent-decline-in.html
The seeking alpha math looks right "The Pref's closed at $8.05 on Friday. They are said to convert to significant premium to market. If one takes Thursday's closing price of $2.50 for Citi common, 3.6 share is equal to $9/share, which is a 9/5.5 = 64% premium to market to the Thursday preferred closing price of $5.50" Since the UST and C are used past figures to determine 'premium' and everything tanked since then, it seems a little crazy to try to play this one. Instructive situation though
Another thought - at the risk of being too simplistic, C stock hit a low of approx $1.20 in premarket, and an intraday high of $1.93 before 9.45am. The stock could trade in that range for several days, weeks and possibly months - it's the same percentage range as a stock trading between $20 and $32.16.
Food for though; The $3.25 per common shares was established based on the 20 day average ending the day before 2/9. The "market value" of the preferred is set the same way. For C-M this value is a few pennies from $10. @ 10% premium the conversion ratio is $11/3.25 = 3.38 @ 20% premium the conversion ratio is $12/3.25 = 3.69 @ 30% premium the conversion ratio is $13/3.25 = 4.00 @ 40% premium the conversion ratio is $14/3.25 = 4.30 @ 50% premium the conversion ratio is $15/3.25 = 4.62 The current ratio implied by the market is 8.14/1.5 = 5.43 or a 76.5% premium to market. I'd bet on the 50% number.
as in a (zerohedge described) short-covering rally? (bullish for common) or a future common stock injection by the US govt? (bearish for common)
Another update from "Zero Hedge": http://zerohedge.blogspot.com/2009/03/citi-issues-8k-clarifying-preferred.html http://biz.yahoo.com/e/090302/c8-k.html http://idea.sec.gov/Archives/edgar/data/831001/000095012309003810/y74951exv99w1.htm maximum conversion price will be $3.83. See SEC filing for complete information.