So Citigroup (C) has proposed that the US taxpayer and other preferred shareholders convert up to $75 billion of preferred stock into common stock, thus bolstering the company's tangible equity and putting it in less desperate need of a complete takeover.
And what will the US taxpayer get for this preferred stock conversion? 40% of the company for some of its $45 billion of preferred, say reports. The reports add that Citigroup's goal here is to keep the US's ownership under 50%, so this won't be a de facto nationalization.
Well, that's nice for Citigroup...and another ream-job for taxpayers.
Citigroup's common equity is currently worth $10 billion. If the US were to convert all $45 billion of its preferred at the current stock price, it should end up with 80% of the company, not 40%.
For the US to convert $45 billion of preferred to common and only get 40% of the company, Citigroup's existing common equity would have to be valued at $65 billion, not $10 billion, and the conversion price would have to be about $10 a share. Or the US would only be able to convert $4 billion of its $45 billion, which wouldn't help Citigroup's tangible equity ratio much.
So is that what Citigroup is trying to do here? Persuade the US goverment to convert to common stock at a price miles above the current trading price, screwing the US taxpayer yet again?
Or does Citigroup have some other secret plan up its sleeve whereby it can take up to $75 billion of debt (preferred stock) off its books and not end up diluting its current shareholders 90%?
Could this be contributing the shortage of cash? I bet folks over at C are a little jittery:
SFCG Co., a Tokyo-based lender whose creditors include Citigroup Inc., collapsed in the biggest bankruptcy by a publicly traded Japanese company in more than a year, listing 338 billion yen ($3.6 billion) in liabilities.
SFCG, whose shareholders include Hikari Tsushin Inc. with an 11.5 percent stake as of Feb. 4, owes Citigroup 71 billion yen, according to a securities report filed by SFCG on Oct. 27. Shinsei Bank Ltd., owed 54.1 billion yen by SFCG as of July 31, led declines among Japanese lenders in Tokyo trading.
“Taxpayers are being ripped off. The only thing worse than nationalizing a bank is to pay for the entire bank and only get one-third of it.” -Congressman, Brad Sherman
I've never met a retarded person who wasn't smiling.
