APRIL 14, 2009, 4:10 P.M. ET New Citigroup Stock Registration Delayed Article
By DAVID ENRICH and JOHN JANNARONE
Citigroup Inc.'s plans to issue 4.4 billion new shares won't move forward until at least Friday, potentially prolonging a short squeeze that has been propelling its stock higher this week.
The Securities and Exchange Commission has told Citigroup executives that it won't approve the company's stock-registration statement until after the New York banking company announces first-quarter earnings on Friday, according to people familiar with the matter. Citigroup previously had told traders that the approval would come in early April.
Hedge funds and other traders had been hoping for some near-term relief from the short-squeeze, because they're facing huge losses on their short positions.
April 14 (Bloomberg) -- Citigroup Inc. is more likely to cut the conversion ratio for its preferred shares now that the common stock is trading above $3.25, according to a Bank of America Corp. analyst.
Hedge funds and speculators began buying Citigroup’s preferred stock in February after the company announced plans to exchange up to $52.5 billion of it for common stock to replenish capital. Shares of the New York-based bank have rallied as much as 38 percent above their planned conversion price of $3.25 in the past two days, raising the prospect that holders of the preferred stock will receive fewer shares.
“The risk of the preferred exchange offer being repriced lower (that is, lower conversion ratios than previously indicated) has increased, in our view,” Tatyana Hube wrote in a report today.
Jon Diat, a Citigroup spokesman, declined to comment on the report. The bank hasn’t set a date for the conversion.
Citigroup rose 21 cents, or 5.5 percent, to $4.01 in composite trading on the New York Stock Exchange today after climbing as high as $4.48. The stock closed above the planned conversion price of $3.25 yesterday for the first time since the transaction was announced on Feb. 27.
Hedge funds and other investors seeking to profit from the arbitrage between the preferred and common shares have fueled a fivefold surge in the number of Citigroup shares sold short to 1.21 billion as of March 31, according to New York Stock Exchange data. Investors covering their short sales have helped fuel gains in Citigroup shares, said Scott Lynch, a managing direct at Credit Suisse Group AG who trades financial shares in New York.
“People are fearful of the deal ratios possibly getting changed, but it’s more along the lines of the stock trading up because of a short squeeze,” Lynch said in an interview. “It’s really more technically based, than based on preferred deal getting changed.”
The shares have more than doubled since Feb. 27, when the U.S. government ratcheted up its effort to save Citigroup by agreeing to convert as much as $25 billion of preferred shares into common stock. Another $27.5 billion in preferred shares held by private investors may also be exchanged.
Citigroup’s preferred shares trade below the value of the common shares for which they can be swapped. For example, the company’s 8.5 percent Series F preferred closed today at $19.30. The stock is convertible into about 7.3 common shares, worth a combined $29.27, according to data compiled by Bloomberg.
According to Bank of America, the conversion ratio may be adjusted to bring the value of the common stock received in line with the preferred shares’ face value, which is $25.
“Even if the preferred exchange values are capped at their par values, there is potentially still a lot left to gain,” Hube said.
Citigroup’s plan to issue 4.4 billion new shares may be delayed until at least April 17 because the Securities and Exchange Commission won’t approve their registration until the bank reports first-quarter results, the Wall Street Journal reported, citing unidentified people familiar with the matter. That may prolong the short squeeze that has fueled the rally in Citigroup shares, the newspaper said.
the exchange of the preferred will hurt longs. One way to protect yourself is to buy the series p preferred and then receive 7 common shares when the exchange occurs. Right now, the preferred is underpriced vs. the current common price. Pref=19.50 per share and will receive 7 shares of common @3.75.
I have been asking the same question on this board. So far, I have not received an answer. Either they are taking out their ass or they really do not know what this means to the short seller and the trader.
Geeesss anybody know if this is good or bad? When C issues more shares Friday, the shorts can than cover? Right? No and why?
I have been reading above msg link. I have one questions.
I am going to be on jury duty thus/friday and will not have time to watch the market.
1.> Should I place sell order on my 10k Citi stock for $4
2.> I should wait till the end of week for squeeze to build up and then sell on Monday at higher PPS.
Note: I am assuming Citi will meet beat .59 cent to .69 cents earning.
Do yu folks think there is more upward trend on City PPS.
go to page 33...if there is high participation...there could be 21B shares outstanding. If C's Market cap goes to 150B that is $7.14 a share...at the current price C market cap is 80B
If C has low participation....13.1B shares outstanding. If C's Market cap goes to 150B that is $11.54 a share...at the current price c market cap 52B
Assume somewhere in between...17B shares outstanding. If C's Market cap goes to 150B that is $9.34 a share...at the current price c market cap 68B
C use to have a market cap of 275B...with all of the preferred shares and costs
It could take 2 years to get to the 150B market cap
I have one question. When did news or rumor of GS's stock issuance first come out? Right after Earnings or before earnings? I seem to recall that news of some form of stock issuance came out before the earnings announcement.
"The Securities and Exchange Commission has told Citigroup executives that it won't approve the company's stock-registration statement until after the New York banking company announces first-quarter earnings on Friday"
Does that mean SEC doubt its earning for the first qt?