Citi, US Reach Deal to Convert Government Stake

[BuckNaked]

http://www.cnbc.com/id/29420036

Citi, US Reach Deal to Convert Government Stake
Topics:Stock Market | Banking
Sectors:Financial Services | Banks
Companies:Citigroup Inc
By: CNBC.com | 26 Feb 2009 | 11:44 PM ET
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Citigroup and the U.S. have reached a deal to give the government a bigger stake in the troubled banking giant, by converting its preferential shares to common stock, a Treasury official tells CNBC.

The agreement will see the Treasury's Citi stake rise to between 30 to 40 percent and in return, the government is demanding a boardroom shakeup. The exact details of this shakeup are not known. However, CEO Vikram Pandit is expected to keep his job under the agreement.

The Treasury official also said the government will be offered the lowest price given to any private investor to convert preferred shares into common equity. The Treasury will match the private investors' conversions dollar-for-dollar up to $25 billion.

Other key details of the Citigroup-U.S. pact remain unclear.

As previously discussed -- when comparing Citigroup's market capitalization with the number of preferred shares the government currently owns -- if these shares were converted right now to common stock, they would worth more than 100 percent of Citi's total market capitalization.

RELATED LINKS

Current DateTime: 08:46:44 26 Feb 2009
LinksList Documentid: 29420486

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* Geithner: Bankers to Blame

Any additional money that Citi receives from the government automatically means a further stock dilution. While Obama Administration officials say this isn't nationalization, markets may interpret the situation differently and see it as de facto nationalization.

The agreement is likely to make the U.S. government the biggest shareholder of Citigroup, owning a majority of its stock. This is de facto government ownership, or nationalization.

Stocks up or down tomorrow...? How long for B of A...?

 

[wnied]

Buy Buy Buy....Hold Hold Hold

Yummy Financials Consumption!

Stock A Go-Go!

~wnied~

 

[Hacp]

So if Citi goes bankrupt, the taxpayers lose 100+ billion dollars. Thanks again Obama.

 

[CycloWizard]

As a partial owner of Citi, I have decided to set my student loan balance to zero.

 

[maddogchen]

down 30+% this morning

 

[CPA]

Originally posted by: CycloWizard
As a partial owner of Citi, I have decided to set my student loan balance to zero.

I have decided to fire all credit card collection personnel.

 

[ayabe]

Originally posted by: Hacp
So if Citi goes bankrupt, the taxpayers lose 100+ billion dollars. Thanks again Obama.

Or you could just let them fail to the tune of what a trillion or two?

Dur.

 

[Strk]

Since you never really own your house and now that the government owns a large chunk of Citi, can I just stop paying my mortgage?

No? Damn, I got screwed on that deal!

 

[GTKeeper]

I bought 2.50 puts on this pig yesterday, cashed out today for 100% gain. I hope this stock goes to 3 or more so I can short the piss out of it again.

 

[yllus]

Geithner's Latest Gift To Citigroup Owners Finally Done

Here's the deal:

You, the taxpayer, will be converting your dividend-paying Citigroup preferred stock into non-dividend paying Citigroup common stock. And because Treasury Secretary Tim Geithner seems determined to gift as much of your money as possible to Citigroup stakeholders as possible, you'll be doing this at $5, more than twice Citigroup's closing share price.

If this were a homeowner bailout, it would be equivalent to the government paying you $500,000 for your house when it's only worth $250,000. Of course that's never going to happen. (And, of course, in this case, Citi's house is only worth $2.50 because taxpayers gave Citi massive second and third mortgages. If they hadn't, it would be worth zero.).

The Treasury Secretary will try to make it look as though he got you a great deal because he also gets to fire half of the Citigroup board. But that's just a symbolic concession. Boards don't run companies. And a new board won't stop Citigroup's asset values from plummeting so that the company will soon need even more of your money.

Which brings up another problem with Geithner's plan. It doesn't address Citigroup's asset problem.

(What should Geithner have done? Forced Citi to write down the value of its assets to nuclear-winter levels, and then converted a bunch of Citigroup debt to equity--including the US's preferred stock. Instead, he just gave your money away.

Disclaimer: Merely repeating an opinion, I have no useful industry knowledge to base my own opinion upon.

 

[zephyrprime]

I hope people realize who governments real bosses are now. It's certainly not us little peons. Keep in mind that the government couldn't have gotten Citi group FOR FREE if it had merely allowed to to go bankrupt which it no doubt would have done months ago if the free market were allowed to have it's way. Let's hear it for SOCIALISM FOR THE RICH!!!

Also, it's clear the government is unwilling to clear house and settle this problem once and for all. There's simply not enough boldness and courage in DC to get the job done. The gov will drag it's feet and only act when necessary in piecemeal fashion. This ensures that this crisis will drag on for YEARS as things slowly disintegrate around us.

 

[CrackRabbit]

I'm to the point where I think we should just nationalize the whole thing at once instead of a bit at a time.
The shock may hurt in the short term but in the long term it may help stabilize the markets.
Of course I'm pretty sure I could be wrong as well.

 

[Hacp]

Originally posted by: ayabe

Originally posted by: Hacp
So if Citi goes bankrupt, the taxpayers lose 100+ billion dollars. Thanks again Obama.

Or you could just let them fail to the tune of what a trillion or two?

Dur.

What we could do is wipe out the shareholders, let the people who own the debt be the new shareholders, and have citi issue fresh debt.

 

[frostedflakes]

Originally posted by: yllus
Geithner's Latest Gift To Citigroup Owners Finally Done

Here's the deal:

You, the taxpayer, will be converting your dividend-paying Citigroup preferred stock into non-dividend paying Citigroup common stock. And because Treasury Secretary Tim Geithner seems determined to gift as much of your money as possible to Citigroup stakeholders as possible, you'll be doing this at $5, more than twice Citigroup's closing share price.

If this were a homeowner bailout, it would be equivalent to the government paying you $500,000 for your house when it's only worth $250,000. Of course that's never going to happen. (And, of course, in this case, Citi's house is only worth $2.50 because taxpayers gave Citi massive second and third mortgages. If they hadn't, it would be worth zero.).

The Treasury Secretary will try to make it look as though he got you a great deal because he also gets to fire half of the Citigroup board. But that's just a symbolic concession. Boards don't run companies. And a new board won't stop Citigroup's asset values from plummeting so that the company will soon need even more of your money.

Which brings up another problem with Geithner's plan. It doesn't address Citigroup's asset problem.

(What should Geithner have done? Forced Citi to write down the value of its assets to nuclear-winter levels, and then converted a bunch of Citigroup debt to equity--including the US's preferred stock. Instead, he just gave your money away.

Disclaimer: Merely repeating an opinion, I have no useful industry knowledge to base my own opinion upon.

Well that's kind of disingenuous. What was Citi's stock worth before the financial meltdown? I don't know off the top of my head, but I'm sure it was worth a lot more than $5. The stock market is extremely irrational right now and probably not a good indicator of the true worth of a company.

Once the economy stabilizes, these huge risks should hopefully yield enormous gains when stock prices go up again. If the doomsdayers are right and the market and economy collapse... we'll be screwed. Especially now that the government has so much invested in these companies, though, there's no way they will allow this to happen.

 

[Jiggz]

Taxpayers getting ram-rod in the ASS again! Anybody who disagrees need to go back to Finance 101!

 

[Drift3r]

Originally posted by: Hacp

Originally posted by: ayabe

Originally posted by: Hacp
So if Citi goes bankrupt, the taxpayers lose 100+ billion dollars. Thanks again Obama.

Or you could just let them fail to the tune of what a trillion or two?

Dur.

What we could do is wipe out the shareholders, let the people who own the debt be the new shareholders, and have citi issue fresh debt.

Wipe out the shareholders? What do you mean by this please explain because you sound like you've been playing way to much monopoly. Shareholders will and should be expected to be compensated if their stock is removed from their ownership without their consent. Also the nature of their debt is a little more then what they owe their stockholders.

 

[Hacp]

Originally posted by: Drift3r

Originally posted by: Hacp

Originally posted by: ayabe

Originally posted by: Hacp
So if Citi goes bankrupt, the taxpayers lose 100+ billion dollars. Thanks again Obama.

Or you could just let them fail to the tune of what a trillion or two?

Dur.

What we could do is wipe out the shareholders, let the people who own the debt be the new shareholders, and have citi issue fresh debt.

Wipe out the shareholders? What do you mean by this please explain because you sound like you've been playing way to much monopoly. Shareholders will and should be expected to be compensated if their stock is removed from their ownership without their consent. Also the nature of their debt is a little more then what they owe their stockholders.

Its called bankruptcy. Have you ever heard of the term?

 

[Vic]

Originally posted by: Hacp
So if Citi goes bankrupt, the taxpayers lose 100+ billion dollars. Thanks again Obama.

Don't do drugs, kids.

 

[First]

Originally posted by: Hacp

Originally posted by: Drift3r

Originally posted by: Hacp

Originally posted by: ayabe

Originally posted by: Hacp
So if Citi goes bankrupt, the taxpayers lose 100+ billion dollars. Thanks again Obama.

Or you could just let them fail to the tune of what a trillion or two?

Dur.

What we could do is wipe out the shareholders, let the people who own the debt be the new shareholders, and have citi issue fresh debt.

Wipe out the shareholders? What do you mean by this please explain because you sound like you've been playing way to much monopoly. Shareholders will and should be expected to be compensated if their stock is removed from their ownership without their consent. Also the nature of their debt is a little more then what they owe their stockholders.

Its called bankruptcy. Have you ever heard of the term?

Let them go bankrupt like Lehman? Do you really want to get into a debate about how smart a move that was?

 

[Andrew1990]

Originally posted by: Evan

Originally posted by: Hacp

Originally posted by: Drift3r

Originally posted by: Hacp

Originally posted by: ayabe

Originally posted by: Hacp
So if Citi goes bankrupt, the taxpayers lose 100+ billion dollars. Thanks again Obama.

Or you could just let them fail to the tune of what a trillion or two?

Dur.

What we could do is wipe out the shareholders, let the people who own the debt be the new shareholders, and have citi issue fresh debt.

Wipe out the shareholders? What do you mean by this please explain because you sound like you've been playing way to much monopoly. Shareholders will and should be expected to be compensated if their stock is removed from their ownership without their consent. Also the nature of their debt is a little more then what they owe their stockholders.

Its called bankruptcy. Have you ever heard of the term?

Let them go bankrupt like Lehman? Do you really want to get into a debate about how smart a move that was?

Hmm, maybe it is time. I would rather have everyone fail instead of having the CEOs survive while us peons fail.

Like said before, can the people stop paying their loans as they are "shareholders" of citi? I dont think so....

 

[First]

Originally posted by: Andrew1990

Originally posted by: Evan

Originally posted by: Hacp

Originally posted by: Drift3r

Originally posted by: Hacp

Originally posted by: ayabe

Originally posted by: Hacp
So if Citi goes bankrupt, the taxpayers lose 100+ billion dollars. Thanks again Obama.

Or you could just let them fail to the tune of what a trillion or two?

Dur.

What we could do is wipe out the shareholders, let the people who own the debt be the new shareholders, and have citi issue fresh debt.

Wipe out the shareholders? What do you mean by this please explain because you sound like you've been playing way to much monopoly. Shareholders will and should be expected to be compensated if their stock is removed from their ownership without their consent. Also the nature of their debt is a little more then what they owe their stockholders.

Its called bankruptcy. Have you ever heard of the term?

Let them go bankrupt like Lehman? Do you really want to get into a debate about how smart a move that was?

Hmm, maybe it is time. I would rather have everyone fail instead of having the CEOs survive while us peons fail.

Like said before, can the people stop paying their loans as they are "shareholders" of citi? I dont think so....

You'd rather see many more millions of Americans unemployed out of spite for a few CEOs? Seriously?

 

[Andrew1990]

Originally posted by: Evan

Originally posted by: Andrew1990

Originally posted by: Evan

Originally posted by: Hacp

Originally posted by: Drift3r

Originally posted by: Hacp

Originally posted by: ayabe

Originally posted by: Hacp
So if Citi goes bankrupt, the taxpayers lose 100+ billion dollars. Thanks again Obama.

Or you could just let them fail to the tune of what a trillion or two?

Dur.

What we could do is wipe out the shareholders, let the people who own the debt be the new shareholders, and have citi issue fresh debt.

Wipe out the shareholders? What do you mean by this please explain because you sound like you've been playing way to much monopoly. Shareholders will and should be expected to be compensated if their stock is removed from their ownership without their consent. Also the nature of their debt is a little more then what they owe their stockholders.

Its called bankruptcy. Have you ever heard of the term?

Let them go bankrupt like Lehman? Do you really want to get into a debate about how smart a move that was?

Hmm, maybe it is time. I would rather have everyone fail instead of having the CEOs survive while us peons fail.

Like said before, can the people stop paying their loans as they are "shareholders" of citi? I dont think so....

You'd rather see many more millions of Americans unemployed out of spite for a few CEOs? Seriously?

Its called social Darwinism. Yes, they would be unemployed for a few weeks, but once they economy starts to recover more and more people will be rehired.

Of course the government would have to loan out some money then, but not on the levels it is now. The too big to fail banks would be gone and what not.

 

[First]

Originally posted by: Andrew1990

Originally posted by: Evan

Originally posted by: Andrew1990

Originally posted by: Evan

Originally posted by: Hacp

Originally posted by: Drift3r

Originally posted by: Hacp

Originally posted by: ayabe

Originally posted by: Hacp
So if Citi goes bankrupt, the taxpayers lose 100+ billion dollars. Thanks again Obama.

Or you could just let them fail to the tune of what a trillion or two?

Dur.

What we could do is wipe out the shareholders, let the people who own the debt be the new shareholders, and have citi issue fresh debt.

Wipe out the shareholders? What do you mean by this please explain because you sound like you've been playing way to much monopoly. Shareholders will and should be expected to be compensated if their stock is removed from their ownership without their consent. Also the nature of their debt is a little more then what they owe their stockholders.

Its called bankruptcy. Have you ever heard of the term?

Let them go bankrupt like Lehman? Do you really want to get into a debate about how smart a move that was?

Hmm, maybe it is time. I would rather have everyone fail instead of having the CEOs survive while us peons fail.

Like said before, can the people stop paying their loans as they are "shareholders" of citi? I dont think so....

You'd rather see many more millions of Americans unemployed out of spite for a few CEOs? Seriously?

Its called social Darwinism. Yes, they would be unemployed for a few weeks, but once they economy starts to recover more and more people will be rehired.

Of course the government would have to loan out some money then, but not on the levels it is now. The too big to fail banks would be gone and what not.

Except this isn't the African wild. I don't think you quite understand what you're saying; putting millions of Americans out of work has a cascading effect on wages, could even cause a crippling deflation like the Depression, would severely contract investment, confidence, and even increase crime. So it's not just people being out of a job for a "few weeks", that's nonsense. It's a whole slew of things that are self-reinforcing.

In the end, the negatives far outweigh the positves of an ideology like Darwinism, best applied to the life sciences rather than fiscal/monetary policy.

 

[Andrew1990]

Originally posted by: Evan

Originally posted by: Andrew1990

Originally posted by: Evan

Originally posted by: Andrew1990

Originally posted by: Evan

Originally posted by: Hacp

Originally posted by: Drift3r

Originally posted by: Hacp

Originally posted by: ayabe

Originally posted by: Hacp
So if Citi goes bankrupt, the taxpayers lose 100+ billion dollars. Thanks again Obama.

Or you could just let them fail to the tune of what a trillion or two?

Dur.

What we could do is wipe out the shareholders, let the people who own the debt be the new shareholders, and have citi issue fresh debt.

Wipe out the shareholders? What do you mean by this please explain because you sound like you've been playing way to much monopoly. Shareholders will and should be expected to be compensated if their stock is removed from their ownership without their consent. Also the nature of their debt is a little more then what they owe their stockholders.

Its called bankruptcy. Have you ever heard of the term?

Let them go bankrupt like Lehman? Do you really want to get into a debate about how smart a move that was?

Hmm, maybe it is time. I would rather have everyone fail instead of having the CEOs survive while us peons fail.

Like said before, can the people stop paying their loans as they are "shareholders" of citi? I dont think so....

You'd rather see many more millions of Americans unemployed out of spite for a few CEOs? Seriously?

Its called social Darwinism. Yes, they would be unemployed for a few weeks, but once they economy starts to recover more and more people will be rehired.

Of course the government would have to loan out some money then, but not on the levels it is now. The too big to fail banks would be gone and what not.

Except this isn't the African wild. I don't think you quite understand what you're saying; putting millions of Americans out of work has a cascading effect on wages, could even cause a crippling deflation like the Depression, would severely contract investment, confidence, and even increase crime. So it's not just people being out of a job for a "few weeks", that's nonsense. It's a whole slew of things that are self-reinforcing.

In the end, the negatives far outweigh the positves of an ideology like Darwinism, best applied to the life sciences rather than fiscal/monetary policy.

Well this is all theory. We can only guess what would happen if we made such a choice. The same thing applies to what we are doing.

but from what I am seeing around me, person after person is losing their job. If this country is going down the toilet, I would rather it go down fast and recover quicker than prolonging the suffering for the cost of saving a few CEOs.

 

[First]

Originally posted by: Andrew1990

Well this is all theory. We can only guess what would happen if we made such a choice. The same thing applies to what we are doing.

It's not a guess at all, it's as close to a certainty as you're going to find, particularly since it has been done before with Lehman. Who saved them when the gov't didn't swoop in? No one. The result was basically a disaster, Lehman is highly correlated and entangled in a collection of critical markets. There is no theory about what would happen if these banks were all allowed to fail. It would be a pure, unmitigated disaster, a totally unnecessary sell-off of assets that are already a great bargain based on P/E and PEG ratios alone. You don't freeze credit like that, it has been the lifeblood of this country since 1776 and is the only reason we exist at all today, thanks to Revolutionary War bonds. Thank you France.

but from what I am seeing around me, person after person is losing their job. If this country is going down the toilet, I would rather it go down fast and recover quicker than prolonging the suffering for the cost of saving a few CEOs.

There is no evidence that things will recover more quickly or swiftly if we just let everyone fail. In fact, it's just the opposite, historically.