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Third bid to rescue struggling Citigroup
By Stephen Bernard |
February 28, 2009, Saturday
|
Print Edition
Print Edition
THE United States government will exchange up to US$25 billion in emergency bailout money it provided Citigroup Inc for as much as a 36-percent equity stake in the struggling bank.
The deal announced yesterday -- the third attempt at a rescue plan for Citigroup in the past five months -- is contingent on private investors agreeing to a similar swap.
The aim is to keep the New York bank holding company alive and bolster its capital as it faces growing losses amid the intensifying global recession. Existing shareholders would see their ownership stake shrink to as little as 26 percent and the bank said that it was eliminating all dividends on common shares.
Investors appeared disappointed in the deal and expected dilution of their stake, sending shares plummeting 94 cents, or 32.8 percent, to US$1.56 in premarket trading.
Underscoring the situation, the company also disclosed that it recorded a goodwill impairment charge of about US$9.6 billion due to deterioration in the financial markets.
The Treasury Department, which has provided a total of US$45 billion to Citi, said that the transaction required no new federal funds. But it left the door open for Citigroup to seek additional government funding or for the conversion to common shares of the remaining US$20 billion in federal bailout money it received late last year.
The government currently holds about an 8 percent stake in Citi.
For now, that US$20 billion in government funding will be converted into a new class of preferred shares that will be senior to other bank debt and it will continue to pay a yearly 8 percent cash dividend. As part of the deal, the payout for all other preferred shares will be suspended.
Citi will offer to exchange up to US$27.5 billion of its existing preferred stock held by private investors at a conversion price of US$3.25 per share, a 32-percent premium over Thursday's close.
The Government of Singapore Investment Corp, Saudi Arabian Prince Alwaleed Bin Talal, Capital Research Global Investors and Capital World Investors are among a number of private investors that said they would participate in the exchange.
The deal announced yesterday -- the third attempt at a rescue plan for Citigroup in the past five months -- is contingent on private investors agreeing to a similar swap.
The aim is to keep the New York bank holding company alive and bolster its capital as it faces growing losses amid the intensifying global recession. Existing shareholders would see their ownership stake shrink to as little as 26 percent and the bank said that it was eliminating all dividends on common shares.
Investors appeared disappointed in the deal and expected dilution of their stake, sending shares plummeting 94 cents, or 32.8 percent, to US$1.56 in premarket trading.
Underscoring the situation, the company also disclosed that it recorded a goodwill impairment charge of about US$9.6 billion due to deterioration in the financial markets.
The Treasury Department, which has provided a total of US$45 billion to Citi, said that the transaction required no new federal funds. But it left the door open for Citigroup to seek additional government funding or for the conversion to common shares of the remaining US$20 billion in federal bailout money it received late last year.
The government currently holds about an 8 percent stake in Citi.
For now, that US$20 billion in government funding will be converted into a new class of preferred shares that will be senior to other bank debt and it will continue to pay a yearly 8 percent cash dividend. As part of the deal, the payout for all other preferred shares will be suspended.
Citi will offer to exchange up to US$27.5 billion of its existing preferred stock held by private investors at a conversion price of US$3.25 per share, a 32-percent premium over Thursday's close.
The Government of Singapore Investment Corp, Saudi Arabian Prince Alwaleed Bin Talal, Capital Research Global Investors and Capital World Investors are among a number of private investors that said they would participate in the exchange.
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