Allison Kilkenny: Unreported

Citigroup’s Clever Plan to Screw Taxpayers Again

Posted in business, Economy by allisonkilkenny on February 23, 2009

The Business Insider

citigroup-ecoSo Citigroup (C) has proposed that the US taxpayer and other preferred shareholders convert up to $75 billion of preferred stock into common stock, thus bolstering the company’s tangible equity and putting it in less desperate need of a complete takeover.

And what will the US taxpayer get for this preferred stock conversion? 40% of the company for some of its $45 billion of preferred, say reports.  The reports add that Citigroup’s goal here is to keep the US’s ownership under 50%, so this won’t be a de facto nationalization.

Well, that’s nice for Citigroup…and another ream-job for taxpayers.

Citigroup’s common equity is currently worth $10 billion.  If the US were to convert all $45 billion of its preferred at the current stock price, it should end up with 80% of the company, not 40%. 

For the US to convert $45 billion of preferred to common and only get 40% of the company, Citigroup’s existing common equity would have to be valued at $65 billion, not $10 billion, and the conversion price would have to be about $10 a share. Or the US would only be able to convert $4 billion of its $45 billion, which wouldn’t help Citigroup’s tangible equity ratio much.

So is that what Citigroup is trying to do here?  Persuade the US goverment to convert to common stock at a price miles above the current trading price, screwing the US taxpayer yet again?

Or does Citigroup have some other secret plan up its sleeve whereby it can take up to $75 billion of debt (preferred stock) off its books and not end up diluting its current shareholders 90%?

2 Responses

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  1. matt said, on February 23, 2009 at 9:25 pm

    I don’t follow

    Okay, so common stock is voting but it’s vulnerable to market fluctuations
    Preferred is higher payment but no vote.

    I don’t follow the numbers. Please to explain

  2. allisonkilkenny said, on February 23, 2009 at 9:33 pm

    Basically, they’re taking the bailout money to inflate their value to bolster the argument that the government doesn’t need to nationalize them. The bailout is taxpayer money, but Citigroup is keeping public ownership under 50% (again, so it’s not officially nationalization).

    However, taxpayers are pouring billions into Citigroup, and their return is pennies on the dollar.

    It’s a scam. They should be nationalized, but they’re begging, clawing, and creatively cooking the books to make it seem like they’re still solvent.

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