C is waiting outside the NY Fed for the doors to open before Wall St does this morning.
Citi Holds Talks With U.S. Over Bigger Ownership Stake February 22, 2009, 9:25 pm From Eric Dash, a DealBook colleague:
Citigroup officials are in active talks with federal regulators that could result in the government owning a bigger chunk of the giant bank, a person close to the situation told DealBook.
Citigroup officials approached the regulators with a plan that would allow them to convert a substantial amount of the $45 billion of preferred shares held by the government into common stock. That would give the government a much bigger ownership stake in the company, and would likely increase its influence. Federal officials have already pressured the company to shrink itself and shake up its board.
Citigroup executives approached officials at the Federal Reserve and the Office of the Comptroller of the Currency about the plan, a person close to the situation said. No final decision has been made, and it is unclear what the government will ultimately decide. And crucial details of the plan remain unclear, including the terms of the conversion arrangement.
For Citigroup, the move would allow them to retire a portion of its existing debt, and through an accounting maneuver, immediately bolster the amount of common stock. That would appease investors and regulators, who are expected to make a bigger cushion of common stock a requirement when details of the new stress test are announced this week. But any such exchange would severely dilute existing Citigroup stockholders since it would require the bank to issue more shares.
Other big banks are considering similar actions, and a Citigroup agreement with the government could pave the way for similar arrangements. That has likely added to the mounting pressure on Citigroup and other financial stocks, which have been battered over the past two weeks amid growing investor fear of nationalization.
Citigroup also hopes to persuade other private holders that bought preferred shares – including foreign government investment funds like the Abu Dhabi Investment Authority, the Government of Singapore Investment Corporation, and the Kuwait Investment Authority – to participate by converting some of their stakes into common equity. Executive believe that would allow the bank to avoid seeking a third financial lifeline from the government.
But without the federal government clarifying its intentions, those investors are unlikely to participate.
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