US Treasury to take 36% Citi stake

By Francesco Guerrera in New York and Alan Beattie in Washington

Published: February 27 2009 12:51 | Last updated: February 27 2009 19:06

The US government agreed to become the biggest single shareholder in Citigroup on Friday, in the latest attempt to save the ailing financial group and to shore up the countrys banking system.

The partial nationalisation will give the government a stake of up to 36 per cent in the troubled lender, capping a spectacular fall from grace for what was one of the worlds largest financial institutions. At Fridays share price, the market value of Citi which has some $1,600bn in assets and operations in 130 countries was less than $9bn.

The latest plan, the third time in four months that the authorities have had to rescue Citi, marks the first time the government has had to take a big stake in a bank with this scale and geographical reach.
The governments stake in Citi will bolster its depleted capital base but will also increase the authorities sway over the company and Vikram Pandit, its chief executive.

Mr Pandit said the deal would not change Citis strategy, operations or governance. But the government has already told Citi to revamp its board by appointing new independent directors and is likely to further constrain its activities in risky areas.

The rescue has been closely watched by investors as a possible model for others.Under the plan, first reported by the Financial Times last week, the Treasury will not provide fresh funds but convert up to $25bn of its $45bn-worth of preferred stock into common equity at $3.25 per share a 30 per cent premium to Citis closing price on Thursday.

Other preferred shareholders, including Government of Singapore Investment Corporation and Saudi Arabias Prince Alwaleed, will convert up to $27.5bn of their holdings at the same price.

The deal would result in a huge dilution for the banks common shareholders. Shares on Friday were down 39 per cent at $1.50.

Analysts said the structure of the deal made it virtually impossible for common or preferred shareholders not to approve it as failure to convert the shares or ratify the deal would end Citis life as a public company.

Copyright The Financial Times Limited 2009


Source Financial Times Of London, FT.com http://www.ft.com/cms/s/0/8d4d59d0-04cb-11de-8166-000077b07658.html?nclick_ch...

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