Wednesday, June 3, 2009

Citi Seeking Authorization To Increase Common Stock From 15 Billion To 60 Billion

Citigroup filed a proxy today in which it disclosed it was seeking to increase its authorized common shares outstanding from 15 billion to 60 billion. While the preferred to common conversion was expected to increase the total common from 5.4 billion to 22.8 billion, the 60 billion number, which obviously was not picked out of a hat, implies that the bank will likely proceed with its creeping equitization plan and potentially dilute the Citi common stock by more than another incremental 100%.

In the meantime, the Common-Pref arb holders are sweating their gonads off day after day, as the exchange which was supposed to close months ago, is still off somewhere in the nebulous and stagflationary future. Of course, when you are paying 100% annual repo rates for those 7.3 shares of common short, every single day bites more and more of your "guaranteed" IRR off. Bloomberg had this to say on the persistent mirage that is the closing date:
Citigroup Chief Financial Officer Edward “Ned” Kelly said on a May 7 conference call with analysts that the SEC must sign off on the exchange documents before the offer can proceed. The bank separately needs to complete an agreement with the U.S. Treasury Department to convert as much as $25 billion of government-held preferreds into a 34 percent common stake.

Once the exchange offer is formally extended, the bank will keep it open at least 20 business days before closing, according to the filing.

“We plan to launch this as quickly as we can,” Kelly said on the May 7 call.

In a note to investors yesterday, Sanford C. Bernstein & Co. analyst John McDonald wrote that “questions remain about both the timing and amount” of the pending offer.

“While it is difficult to gain any clarity on this issue, we sense that Citi will likely complete its preferred-to-common exchange in early- to mid-third quarter,” he wrote
Looks like Ned and the SEC are fully set on precipitating total and complete IRR shrinkage, and wrecking whichever funds are still left in the trade. Once that is done, the subsequent 100%+ dilution once the CRE volcano finally explodes, will make any remaining longs very unhappy. Sphere: Related Content
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