Business NEWS

Citigroup Inc. reaches aid deal with US government to increase stake.

By Amarendra Bhushan for CEOWORLD Magazine Updated:February 27, 2009

Another day, another bailout! I feel like I’ve seen this movie before.

I suppose until ownership goes over 50% they can claim it is still private but it’s the thin end of the wedge and nationalization is inevitable. Presumably this also dilutes common stock?

Still sounds like nationalization…

Citigroup Inc and the Obama administration are close or about to annouce an agreement in which the government will substantially raise its investment in the bank. Ben Bernanke, chairman of the Federal Reserve, said he wanted to avoid nationalising the banks but added that the government would end up owning a “substantial minority” of this and other major banks.

The company also says it recorded a goodwill impairment charge of about $9.6 billion due to deterioration in the financial markets.

The government will convert some of its preferred stock in Citi to common shares if the New York-based bank along with other private investors.

- US government will raise its stake in Citigroup to 30-40% from 7%.
- US Treasury will convert up to $25 billion in government-held preferred shares in the bank to common equity.
- Chief executive Vikram Pandit is expected to keep his job.
- The government has already invested $45bn (£31bn) in Citi through two capital injections.

The increase in government ownership will not require additional taxpayer money. The government currently holds about an 8 percent stake in Citi.

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