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Citigroup Preferred Stock Conversion Key to New US Treasury Deal
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by Tina Kells | February 27, 2009 at 12:02 pm
2786 views | 5 Recommendations | 3 comments
The Treasury Department has reached a tentative deal with Citigroup that may help the struggling financial company stay in business.
The US Treasury has agreed to substantially increase its ownership in Citigroup by converting safer preferred stock to the riskier common shares in an effort to reduce the company's debt load.
By restructuring their shareholdings the US Treasury is taking on an increased risk on behalf of taxpayers. Should Citigroup fail to stay afloat after the preferred stock conversion taxpayers will lose all the cash that the government has invested.
There are some terms and conditions that the US Treasury has set in order to agree to the conversion. These include a complete overhaul of the board of directors to consist of a majority of independent members and a similar conversion of privately held preferred stock to common shares.
Under a deal expected to be announced early Friday morning, the Treasury Department has agreed to convert some of its current holdings of preferred Citigroup shares into common stock. The government will convert its stake only to the extent that Citigroup can persuade private investors to do so alongside the government, the people said. The Treasury will match the private investors' conversions dollar-for-dollar up to $25 billion.The size of the government's new stake will hinge on the amount of preferred shares that private investors, including sovereign wealth funds, agree to convert into common stock. The Treasury's stake is expected to rise to 30% to 40% of Citigroup's shares, the people said.
As a condition to the agreement, which is designed to ease investor jitters about the adequacy of Citigroup's capital base, 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.
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Tina Kells
Vancouver, Canada
Most RecentMost Recommended Comments (3)
at 17:59 on February 27th, 2009
Interesting. But was the continued employment of the Citibank's CEO part of the deal? Should it have been?
at 12:06 on March 6th, 2009
If Pandit is so positive concerning Citi's future, how about paying him a dollar a year until he significantly increases the stock value of the bank...........
at 22:41 on April 30th, 2009
It always is never a bad idea to be informative with matters and investment for security purposes. Choose your investment wisely, as there are some stocks that don't make for as good an investment as you might think. The Forbes list of those exact investments has come out, and the list isn't exactly a shocker. AIG, Citigroup, Fannie Mae, Freddie Mac, and GM are the stocks losing money at a frantic pace, and among them, GM is flirting with bankruptcy. This isn't a shocker, as every one of these megafirms is currently great troubled, and went crying to the government about how they lost all their money. Every firm on the list had to get a personal loan from the taxpayers. It's a subject of great speculation if we'll get a return on our investment.