Citi fighting to survive
The Associated Press reports from New York that Citigroup Inc.plans to stimulate the count of outstanding common shares and turn a reverse stock split. This will be a key element of the financial services company’s goal to convert preferred shares to common shares. Early trading following the announcement reflected a share increase of more than 10 percent.
This is all part of Citi’s plan to exchange around $27.5 billion in public and private preferred securities as part of its agreement with the Treasury, which has promised to match up to $25 billion of the conversions. This will be the government’s third cash advance try in five months to keep Citi from sinking beneath the waves.
How will this break down?
All private holders of convertible preferred securities, valued at $12.5 billion, have OKed the swap. The bank will also offer holders of non-convertible preferred and trust preferred securities the option to exchange. Currently, the conversion price is $3.25 per share. The number of common shares will increase significantly following this exchange. Ultimately, Citibank’s capital will benefit to a large degree. Citigroup had gone under $1 per share earlier in March as fears that government bailout efforts wouldn’t be enough.
For those of you (like myself) who don’t know what a reverse stock split is, the AP writer explains: “It reduces the number of a company’s shares outstanding, but increases the value of its earnings per share. The market value of the shares remains the same. Companies often elect to do a reverse stock split in an effort to make their stock look more valuable if the share price is significantly low.”
2008 was tough, but 2009?
Citi’s stock dropped a whopping 77 percent in 2008, and has fallen another 54 percent so far in 2009. How did it fall in 2009 after having made a profit in January and February? That alone caused share price to triple… perhaps their press release and accompanying investor letter can make sense of it?
According to their Web site, Citigroup is the leading global financial services company. They hold 200 million customer accounts and do business in over 140 countries. Through Citicorp and Citi Holdings, Citi provides consumers, corporations, governments and institutions with “a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, and wealth management.” Additional is available at citigroup.com or citi.com.
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Didn’t they already split the stock,you know, with the American taxpayers? Don’t we own part of that company? They ought to come up with some “convertible preferred” service or product that people actually want.
The company could save at least $10 annually if it stopped sending me solicitations for it’s products that I throw in the trash.