Good Money After Bad: U.S. to Up Citi Stake

Here we go again:

It looks like you and me and that guy behind the tree are going to be on the hook for a few billion more dollars:

“Citigroup Inc. is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people familiar with the situation.

While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup’s common stock. Bank executives hope the stake will be closer to 25%, these people said.

Any such move would give federal officials far greater influence over one of the world’s largest financial institutions. The proposal was made by Citigroup to its regulators. The Obama administration hasn’t indicated if it supports the plan, according to people with knowledge of the talks.

The talks reflect a growing fear that Citigroup and other big U.S. banks could be overwhelmed by losses amid the recession and housing crisis. Last week, Citigroup’s share price fell below $2 to an 18-year low. Bank executives increasingly believe that the government needs to take a larger ownership stake in the institution to stop the slide.

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.”

I don’t for a minute believe it wont cost taxpyers more money — we are that much more involved with Citi — so we would have to rescue them.

Let’s see if Rick Santelli decides to rant about this also . . .


UPDATE: February 23, 2009 5:56am

Note that the FT has a very different take on this:

Citi presses officials to take 40% stake

Citigroup is pressing the US government to agree on a new capital injection that would increase the authorities’ stake in the troubled bank to about 40 per cent but stop short of an outright nationalization.


U.S. Eyes Large Stake in Citi
WSJ, FEBRUARY 22, 2009, 8:30 P.M. ET

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