Headline of the Day: Citi's Clever Plan to Screw Taxpayers Again

[a1bion]

Just put this zombie out of its misery already.

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%?

http://finance.yahoo.com/tech-ticker/article/191028/Citigroup%27s-Clever-Plan-to-Screw-Taxpayers-Again?tickers=c,xlf,^dji,^gspc

[radbag]

i don't want to own citi.

what we do 'own' though, i'd like to appreciate in value...and it would (theoretically) if the preferreds were to be converted.

i think pandit's plan is more of a way of having to avoid having to have future government sponsorship.

[a1bion]

You may not want to own Citi. But let's face it. We do.

[annarborgator]

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.

http://www.bloomberg.com/apps/news?pid=20601087&sid=avP37JtL5E.U&refer=home

[annarborgator]

The best quote I've heard about Citi so far:

“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