“Private” Investors in Citigroup
From a Wall Street Journal article on possible plans for a larger federal ownership stake in Citigroup:
Under the scenario being considered, a substantial chunk of the $45 billion in preferred shares held by the government would convert into common stock, people familiar with the matter said. The government obtained those shares, equivalent to a 7.8% stake, in return for pumping capital into Citigroup.
The move wouldn’t cost taxpayers additional money, but other Citigroup shareholders would see their shares diluted. A larger ownership stake by the federal government could fuel speculation that other troubled banks will line up for similar agreements. [...] As part of the plan, Citigroup officials hope to persuade private investors that have bought preferred shares — such as the Government of Singapore Investment Corp., Abu Dhabi Investment Authority and Kuwait Investment Authority — to follow the government’s lead in converting some of those stakes into common stock, according to people familiar with the matter. That would further bolster an obscure but increasingly pivotal measure of banks’ capital known as “tangible common equity,” or TCE.
Words like “Government of” and “Authority” when paired with the names of countries are usually indications that we’re dealing with government entities, not private ones. The upshot of this would be to turn Citigroup into a company that was, in essence, jointly owned by a few different governments.
29 Responses to ““Private” Investors in Citigroup”
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February 22nd, 2009 at 9:17 pm
We’re going to convert $45 billion of preferred stock into common stock which has a total value of $10 billion and only get 25-40%? Shouldn’t we get 45/(10+45) = 82%
February 22nd, 2009 at 9:31 pm
That’s it! Brilliant. Multi-nationalize the banks. Why didn’t I think of that?
February 22nd, 2009 at 10:05 pm
I wonder whether this would complicate matters, though, if further steps — like receivership — are still necessary at some point down the road. Do we then have to negotiate with Singapore when their equity gets wiped out?
February 22nd, 2009 at 10:20 pm
Just kill it.
Wipe out the investors, split it up into bite-sized chunks that DO ONE THING APEICE and then sell those for whatever they’re worth.
This is our freaking chance. I don’t want a giant CitiGroup, now owned by a bunch of foreign governments, still big enough to demand stuff from the government. Let 1000 community banks pick over its carcass.
You know, the ones that didn’t spend a decade playing it fast and loose, and held onto their mortgages.
February 22nd, 2009 at 10:23 pm
Cosign with joe from Lowell.
Also, Josh Marshall has a pretty good read on what this is about.
February 22nd, 2009 at 10:37 pm
the issue of foreign ownership positions in the “likely to go into US receivership” banks has been, is now, and will continue to be the core problem with “going into receivership.”
February 22nd, 2009 at 10:45 pm
The problem with multiple governments owning Citigroup is that that lets Citi play the governments off against each other. I’d rather just buy out the other governments if it came to that.
max
['Stop fucking around, dammit.']
February 22nd, 2009 at 10:52 pm
guess that means no more Citi baseball…..
http://thereformedbroker.com/2009/02/03/pandits-bandits-a-memo-to-citigroups-sponsored-little-league-team/
AS
February 22nd, 2009 at 11:30 pm
The conversion to common from preferred stock is irrelevant. Tonight’s story that the Treasury or the Fed is going to pump several tens of billions more into C is the bigger story.
That’s money right down the rat hole. C is dead. They can pretned it’s not for day weeks or months more. Hell years I suppose but really they are working week by week now. Making stuff up as they go along. C is the big enchilada right now. BAC not quite so much this exact moment, meaning this week.
Here is the main deal. C doesn’t have their depositors money. Well no bank has the cash but they are supposed to have assets to cover them, C doesn’t. Not even close. In the end al the dancing is meant to keep depositors from jumping. A bank run in other words. This is all really simple stuff. Made complex to confuse things.
February 22nd, 2009 at 11:41 pm
“Just kill it.”
Yup.
February 23rd, 2009 at 12:25 am
I hope the Singapore person gets the chairmanship.
February 23rd, 2009 at 12:27 am
Has anyone commenting on this actually read Citigroup’s financials? Why is it that most Americans who irrationally believed that housing prices could go up forever, now pronounce with certainty that major, heavily regulated financial institution that threw out it management 15 months ago is lying?
February 23rd, 2009 at 12:32 am
Rapier,
Where does it say that they are dumping money into Citi?
February 23rd, 2009 at 12:42 am
According to invest-o-pedia, preferred shares work so:
“The fixed-income component offers a steady income stream and some protection of the investors’ capital. But the option to convert these securities into stock gives the investor the opportunity to gain from a rise in share price.
“Convertibles are particularly attractive to those investors who want to participate in the rise of hot growth companies while being insulated from a drop in price should the stocks not live up to expectations.
“The Opportunity for the Investor To demonstrate how convertible preferred shares work and how they benefit investors, let’s consider an example.
“Let’s say Acme Semiconductor issues one million convertible preferred shares priced at $100 a share. These convertible preferred shares (as they are fixed-income securities) give their holders priority over common shareholders in two ways. First, convertible preferred shareholders receive a 4.5% dividend (provided Acme’s earnings continue to be sufficient) before any dividend is paid to common shareholders. Second, convertible-preferred shareholders will rank ahead of common shareholders in the return of capital if Acme ever went bankrupt and its assets had to be sold off. That said, convertible-preferred shareholders, unlike common shareholders, rarely have voting rights.”
http://www.investopedia.com/articles/stocks/05/052705.asp
In other words, preferred shares give us the best opportunity to make our money back quickly if the business can become profitable, regardless of stock price, or recover our investment in case of a bankruptcy.
This seems like the position we should be in, not in speculative common shares, which appear to be headed down.
February 23rd, 2009 at 4:08 am
I was shocked to learn that the US has fallen to rank #17 in GDP per capita, after decades of being near the top (you can’t compete with countries like Norway or Luxembourg). 17? Stories like this may explain how this came to be. Where is the outrage?
February 23rd, 2009 at 6:33 am
Singapore? Abu Dhabi? Kuwait? Sounds just like the sort of tough regulation that we need!
February 23rd, 2009 at 8:31 am
I think the whole Citibank bailout scheme is a covert stimulus plan to keep the lawyers and politicians employed.
February 23rd, 2009 at 8:34 am
How much did Robert Rubin get in compensation from Citibank? Over $100 Million?
So how much is Robert going to invest in this bailout?
After all, if you are going to coerce the single mothers of America into investing in the bailout (with their tax dollars) then why not put the touch on those multimillionaires who caused the mess?
February 23rd, 2009 at 8:36 am
The reason the Democratic leadership is not killing Citibank is that that would give shareholders an excuse to sue the shit out of Robert Rubin. So call the enabling legislation the “Robert Rubin Protection Act”.
February 23rd, 2009 at 8:38 am
I don’t understand the hullaballoo about preserving shareholder value. These shares don’t have any value–unless you purchased them recently, in which case you’re either a speculator or a fool.
February 23rd, 2009 at 8:41 am
And Obama is dragging Foreign Governments into the act for the same reason Ronald Reagan sold advanced weapons to Iran. Remember Ollie North and the Iran Contra scandel?
If the Executive needs to raise lots of money for questionable purposes and needs to evade Congressional oversight/scrutiny by the voters, then the easiest way is to COVERTLY sell favors to foreign governments.
So the REAL question –that’s not being asked– is: What will Singapore and the Arabs get for their money?
February 23rd, 2009 at 8:50 am
PS The balance sheet presented in the earlier thread –re Citibanks assets and liabilities — is bullshit, in my opinion.
From http://www.nytimes.com/2009/02/23/business/23bank.html?hp
“Even though banks have reported billions of dollars of losses from bad loans, these critics say, the major institutions still carry TRILLIONS of dollars in additional toxic assets and are too damaged to resume normal lending.”
February 23rd, 2009 at 8:52 am
Maybe the US gov’t don’t have the money so they are collaborating with other governments.
February 23rd, 2009 at 9:31 am
Speaking of having capital to cover deposits, what ever happened to the Basel II Accords?
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