Sunday, February 22, 2009

Citi Presses US To Take 40% Stake

Developing story: The Financial Times has just broken that Citigroup is pressing the U.S. government to take a 40% stake - a nationalization, but not quite... Obviously everyone would be convinced that the government stopping short of owning another 11% would be oh so critical. The fact that futures are up on this news is conclusive evidence that traders and bloomberg terminals have been supplanted by monkeys and typewriters. Can't be good for Bloomberg's revenue projections.
People close to the situation said Citi executives had been in discussions with regulators during at the weekend over a plan that would enable the government and other shareholders to convert up to $75bn of preferred shares into common stock.

According to its proponents, the injection of common stock would bolster Citi’s capital base while at the same time allaying market fears of a nationalisation. Under the plan, first revealed by the Financial Times last week,, Citi could also try to raise fresh equity with a public share offering. The aim would be to keep the government stake to no more than 40 per cent or at least below 50 per cent, said people familiar with the plan.

People familiar with the plan said it would hinge on the price at which the government and other shareholders, which include sovereign wealth funds and Prince Al Waleed, convert their shares as well as how many of its $45bn-worth of shares the government converts.

However, the US Treasury has so far not expressed an opinion on the idea and it is unclear whether the government would agree to convert its preferred shares into Citi’s common shares without demanding a controlling stake.

Top Government Officials – who are trying to establish seeking a want a more strategic and less ad hoc response to the crisis – were and are anxious to avoid if possible the type of Sunday night crisis announcement that became a staple for Hank Paulson for ’s crisis management at the Treasury last year.

They apparently believe that the market response to White House and Treasury statements on Friday reaffirming the administration’s commitment to private ownership of financial institutions buys them some time to come up with a way forward.

The Treasury said secretary Tim Geithner would “preserve a financial system that is owned and managed by the private sector”.

Citi declined to comment. The Treasury was not available to comment.

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Greg Gurevich said...

Great Post!

What software are you using for this analysis?