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Citigroup's Clever Plan to Shaft Taxpayers Again
Posted Feb 23, 2009 11:29am EST by Henry Blodget in Investing, Recession, BankingFrom The Business Insider, Feb. 23, 2009:
So 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%?
For more coverage, go to The Business Insider.
439 Comments
Raj - Monday February 23, 2009 11:36AM EST
So basically they wont have to pay preferred share dividends anymore?
Reedersong - Monday February 23, 2009 11:38AM EST
Then we should all be sent their prospectus and we should all be allowed to vote on their board members.
monk man - Monday February 23, 2009 11:40AM EST
It is time to say enough already to the thiefs and fools who run Citi and the govt who keeps pouring money into this train wreck. Only way to do it is if everyone who does any kind of business with Citi (bank accounts, IRA's etc) is to simply transfer it to a non-socialist bank and let the stupid and weak die already.
Yahoo! Finance User - Monday February 23, 2009 11:43AM EST
Its called socialism - and thats where we are headed!
tom - Monday February 23, 2009 11:43AM EST
LET CITI GO THE WAY OF THE BUGGY WHIP..ALL THIEVES...
Yahoo! Finance User - Monday February 23, 2009 11:44AM EST
Failure - Throw them all in JAIL
Wehrmeister2000 - Monday February 23, 2009 11:44AM EST
WRONG!!! Now that is where you can call the Big Boys just a bit too greedy, and only a fool would not agree. Do they think Obama will go for this? Well, maybe...;'{P~~~~~~
lisalipps - Monday February 23, 2009 11:44AM EST
The US taxpayer especially the middle class will get screwed royal for years to come with these joke bailout packages.
Yahoo! Finance User - Monday February 23, 2009 11:46AM EST
Why don't yahoo realize that Blodget has zero credibility and his presence here makes this site a joke.
R - Monday February 23, 2009 11:47AM EST
Citi management is just doing what is in their best interest. Not surprising. They are broke and won't admit it. The question is, why should I support my tax dollars going to this? Oh, I forgot - I have no choice! I'm just a working slob. I am forced to pay taxes to support rich bankers and their friends (Geitner, etc) in Washington. In other words, taxation without representation. Sound familiar? http://menznews.blogspot.com
David - Monday February 23, 2009 11:47AM EST
Story re.Citibank plan to "screw" taxpayers was great. You are in the forefront telling the truth to the public. Kudos! And BTW the Fundamental Solution is to dissolve the private for-profit Fed, and have Treasury assume these functions
Bud - Monday February 23, 2009 11:47AM EST
Cons and Criminals. No matter what Citi does or the Federal Gov't they will truly be banrupt in 6 months anyway so what is the difference
Yahoo! Finance User - Monday February 23, 2009 11:48AM EST
It's fun watching the big bad banker men grovel to civil servants. Capitalism ho!
CBW - Monday February 23, 2009 11:48AM EST
Aritifical price fixing, loan paperwork, inflation by Fed, Community Reinvestment Act, no regulation are just some of the reason we're in this pickle! Screw the gov. they are unable to be a voice "of the people". If you want to be OK, take responsibility of your finances. Taxpayers are always getting hosed, that's nothing new. It will get worse, so be preapred.
Josh H - Monday February 23, 2009 11:48AM EST
so banks, win win. hahahahahhahahahah! what a shock! time to put your knees to the ground and hands in the dirt. money is the root of all evil.
Toeser - Monday February 23, 2009 11:49AM EST
Many big companies in this country are nothing more than sand boxes for CEO's. They have not been run for shareholders, lower level employees, customers, or the country in general. Citi is the poster child for this trend.
Yahoo! Finance User - Monday February 23, 2009 11:49AM EST
Sell all your stocks. That's the only way to hurt all these overpaid, useless, greedy CEO types.
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Reedersong - Monday February 23, 2009 11:35AM EST
The federal reserve is a private company, owned by a group of families. It prints money and loans it to the government to give to banks that are owned by these same families. Oh, and the government says we owe them back for the money that was exchanged.