Friday, February 27, 2009

US Taxpayer Welcomes Citigroup To His Portfolio

Citi common diluted 74%. Fed converts up to $25 billion of preferred to common, as expected, however with the twist that other private preferred investors have to agree to terms. C shares down 42% post announcement... Did people not see this coming??? Although this was worse than expected. Government keeps making rules up on the fly.

Furthermore, the company increased its 2008 loss by 48% to $27.7 billion as it took a charge for horrendous acquired businesses, a bunch of Citi directors are dunzo and the dividend (of $0.01) is suspended until further notice.

Former chairman of the SEC summarized it best "This is another round of creeping nationalization. This country is going through no less than an economic revolution."

Treasury statement on Citi:

“Citigroup is planning to strengthen its capital structure through conversion of a significant portion of its preferred securities to common equity in a series of exchange offers.

“Citigroup requested that the Treasury participate in this exchange offer by converting a portion of its preferred security to common equity alongside the other preferred holders.

“Treasury is willing to participate in this arrangement to the extent Citigroup is able to reach agreement with its other preferred holders, under the following conditions:

- Treasury would convert its security to match dollar for dollar the private preferred exchanges.
- Treasury would convert up to the $25 billion of preferred stock issued under the Capital Purchase Program. Remaining Treasury and FDIC preferred issued under the Targeted Investment Program and Asset Guarantee Program would be converted into a trust preferred security of greater structural seniority that would carry the same 8% cash dividend rate as the existing issue.
- Treasury will receive the most favorable terms and price offered to any other preferred holder through this exchange.

This transaction does not increase the amount of Treasury’s investment in Citigroup.
Separately, the Chairman of the Board of Citigroup has informed us that the Company will be altering the Board of Directors so that a majority of the Board will be comprised of new independent directors as soon as feasible.

Citigroup will be taking part, alongside other banks with over$100 billion in assets, in the forward-looking supervisory assessment process announced on February 25, 2009 as part of the Treasury Capital Assistance Program. In connection with this program, Citigroup will be allowed to apply for additional Mandatory Convertible Preferred securities or request conversion of the remaining preferred held by Treasury into these securities, consistent with the terms of the program. ” Sphere: Related Content
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Anonymous said...

The US government has made a mess of a bad situation. They still have no clear policies on how to handle this. Just stick to one policy and stick to it 100% guys. Confusing signals are worse than bad signals.

Junior said...

As I said over on Jr Accountant today, as reluctant as I am to promote nationalization, Citi should be seized by FDIC and sold off like a stolen car in parts.

Cut losses, call it a day.