The Treasury Department will convert as much as $25 billion of its preferred stock in Citigroup Inc. into common shares, as part of a broader plan to strengthen the company's capital structure.
It said in a press release that private holders of Citigroup's preferred shares also will be exchanging them for common shares, and that it will match them on a dollar-for-dollar basis.
Although the plan does not call for the Treasury Department to give Citigroup more capital, it would increase the government's stake in the company to more than 30 percent. the plan also would mean more risk for taxpayers, as common shares rank below preferred shares in their claim on assets in a bankruptcy or liquidation.
Citigroup's chief executive, Vikram S. Pandit, will remain in that position, but the company agreed to overhaul its board of directors so that a majority will be new, independent members.
The conversions are intended to boost Citigroup's so-called tangible equity, a key measure of bank health. The Federal Deposit Insurance Corp. considers a bank "critically undercapitalized'' if the ratio of its tangible equity to assets falls below 2 percent. Citigroup qualifies.
Since October, the Treasury Department has injected $45 billion in capital into Citigroup, getting preferred stock in return. It also agreed to provide guarantees on more than $300 billion in troubled assets, getting more preferred stock as a fee. The government's shares carry annual cash dividend payments of 5 percent to 8 percent. The Treasury Department said the remainder of its Citigroup stock would be converted to a trust security with greater seniority in the new capital structure. It still would pay an 8 percent cash dividend.
published February 27, 2009, 0 Comments
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