CITIGROUP AND the US Treasury are nearing agreement on a deal that would give the federal government a stake of about 40 per cent in the troubled bank in exchange for bolstering its depleted capital base.
People close to the situation said no agreement had yet been reached and the government had yet to approve the plan from Citi, which stops short of nationalisation. But they added that negotiations between Citi’s executives and Treasury officials had made progress since the weekend and an announcement could come as early as today or tomorrow.
Insiders say the deal centres on the conversion of part of the government’s $45 billion (€35 billion) of preferred shares into Citi’s common stock – up to a stake of about 40 per cent. Other shareholders, including sovereign wealth funds and pension funds, would also convert some of their $30 billion-plus of preferred stock into shares.
Citi might add more capital through an equity offering. The moves would boost its capital base by adding more common stock without forcing the government and other investors to spend more money. But it would severely dilute the holdings of other shareholders.
Crucial details, such as the price of conversion and the stake the government will hold, are to be finalised. In recent days, the capital markets have been unnerved by uncertainty over the terms of the deal, but Citi shares rose more than 12 per cent to $2.40 by early afternoon in New York. – ( Financial Timesservice)
