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Published February 23, 2009 at 7:10 AM
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 With nationalization fears pummeling its share price, Citigroup Inc.
(NYSE:C) has decided to take a different tack in warding off the a
takeover by Uncle Sam ... it is selling the government an even bigger
stake.
Continue reading below
According to the Financial Times, Citi's strategy consists primarily of convincing the Treasury to inject more funds into the
struggling institution -- in addition to the $45 billion already
invested -- to shore up the capital base, but leaves the government
without a controlling interest.
The FT writes:
According to its proponents, the injection of common stock would
bolster Citi's capital base while at the same time allaying market
fears of a nationalisation...Citi could also try to raise fresh equity
with a public share offering. The aim would be to keep the government
stake to no more than 40% or at least below 50%, said people familiar
with the plan.
Should Citi be able to convince regulators to pour more TARP money into
it, the bank would give the government a stake of 25% to 40% (but
definitely less than 50%) and have much of its preferred shares
converted into common stock. The news of another capital injection
sent shares of Citi higher in the premarket, but some are already
predicting that it will ultimately hurt Citigroup. Across the Curve writes:
This would be the most explicit admission that Citibank is insolvent in
its current form and after some initial jubilation and euphoria
financial markets should respond with fear as investors recognize that
Citibank is not alone in its plight.
Indeed, the $45 billion already given to Citi has left investors with
even less faith in the bank than ever as the stock trades below $2 a
share. If it really wants to restore confidence in itself, Citi's
management is likely going to have to do something far more radical
than take a third round of bailout money. - George White
See FT story
See Across the Curve post
See Dealscape post on pros and cons of nationalization
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