US govt to hold 36 pc stake in Citigroup

The US government will own more than one-third of Citigroup after the cash-strapped bank on Friday reached a deal with the administration and other investors for USD 50 billion of equity capital.

The deal would not require injection of taxpayers' money into the struggling bank, but the bank's "tangible common equity" would rise from USD 29.7 billion dollars to USD 81 billion due to the government and other investors converting their preferred shares into common stock.

Besides the US administration, a Singapore government arm and Saudi Prince Alwalled Bin Talal are also among the investors who have agreed to the deal structured to keep afloat the global financial behemoth.

The government has already injected USD 45 billion of fresh capital into Citigroup and holds about eight per cent equity, which would be increased to a maximum of 36 per cent following the conversion of preferential shares.

The government of Singapore Investment Corp's stake would rise to 11 per cent.

Announcing the deal, the Treasury Department said in statement that Citigroup has also agreed to rejig its board so that it has a majority of new independent directors. Besides, Citigroup said that it would suspend dividend payouts on its preferred shares as also the common stock.

While the government would convert its preferred shares worth about USD 25 billion, the private investors would also covert shares worth a similar amount.

Commenting on the deal, Citi CEO Vikram Pandit said: "This transaction -- which requires no additional investment from US taxpayers -- does not change Citi's strategy, operations or governance."

There have been reports that Pandit might lose his job if the government doles out another stimulus package for the bank.

Shares of Citi plunged sharply in the pre-market trade by about 34 per cent to slip below two-dollar mark, on concerns related to greater government control.

Besides the two government packages already received by it, Citigroup would also take part alongside other banks having more than 100 billion dollars of assets in the forward- looking supervisory assessment process announced earlier this week by the US government, as part of the Treasury Capital Assistance Program.

"In connection with this program, Citigroup will be allowed to apply for additional mandatory convertible preferred securities or request conversion of the remaining preferred held by Treasury into these securities," the Treasury said.

About the board rejig, Citi chairman Richard Parsons said in a statement that the board today "unanimously decided to have a majority of new independent directors as soon as feasible."

The board currently has 15 directors, three of who are not standing for election at the bank's AGM in April and two would reach retirement age by that time.

"We are actively conducting a search and expect to announce several new directors shortly," Parsons said.

The Treasury Department would be converting up to USD 25 billion-worth preferred stock issued under the Capital Purchase Program into common shares.

Further, the US government would exchange part of its existing preferred shares which are not exchanged for common stocks into new trust preferred securities. Both would carry an annual dividend rate of eight per cent.

Apart from the Singapore Investment Corporation Pte and Prince Alwaleed Bin Talal Bin Abdulaziz Alsaud, other investors who have agreed to participate in the deal include Capital Research Global Investors and Capital World Investors.