Citi Plans to Boost Balance Sheet — With Help from the U.S. Government
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Back in February, there was talk of a deal in which Citi could issue shares to the government in order to raise capital. Very little has been heard on the subject since, and little has been done to make it happen. Until now. Today, Citi announced that it would allow the government to be the company’s biggest investor. The Street reports on the basics of the agreement:
Under the agreement, announced in February, the Treasury Department will exchange a portion of its preferred stake — roughly $25 billion — for interim securities and warrants. The government will also exchange the remaining preferred shares into trust preferred securities, Citi said.
After the exchange, the government will have roughly a 34% stake in Citi.
Citi’s conversion, first announced in February, is expected to boost the struggling financial institutions tangible common equity level by $61 billion and its Tier 1 capital by $64 billion.
The move should make Citi extremely well capitalized, helping the embattled company remain afloat — and even somewhat competitive. The announcement comes one day after the Treasury Department cleared 10 banks to repay their TARP funds. Citi, however, was not one of the named banks. The 10 banks cleared to exit TARP are:
- Morgan Stanley
- American Express
- Bank of New York Mellon
- BB&T Corporation
- Capital One Financial
- JP Morgan Chase
- Northern Trust
- State Street Corporation
- U.S. Bancorp
- Goldman Sachs
The fact that Citi is not on that list, nor Bank of America, does not come as a huge surprise to most people. However, over all the fact that many of the banks are feeling secure enough to pay back the money they owe taxpayers — as well as efforts to capitalize other banks (even though the government will become a major investor) — is encouraging. There are hopes that this will help the stock market eventually. Right now, though, this morning’s strong start for the Dow and the S&P 500 appears to be waning.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.
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