<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Citi asking US govt, GIC to up direct stakes
</TR><!-- headline one : end --><TR>American government could end up owning up to 40% of the bank </TR><!-- Author --><TR><TD class="padlrt8 georgia11 darkgrey bold" colSpan=2>By Fiona Chan
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PHOTO: REUTERS
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<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->THE United States government is on the brink of taking a huge stake in ailing Citigroup as the global financial crisis tightens its grip on the banking giant.
The dramatic step could involve the government taking a 40 per cent holding in Citi, a controversial move that will raise the spectre of nationalisation in America's beleaguered financial sector.
Citi is driving the move. It approached regulators yesterday with a plan for the government to convert some of its US$45 billion (S$69 billion) in preferred shares into up to 40 per cent of common equity, according to news reports.
But the Wall Street Journal said Citi executives hope to limit the stake closer to 25 per cent, which will allow it more independence.
The news helped Asian share markets and gave financial shares a boost in early trading on Wall Street last night as it may be seen to have taken out some of the uncertainty surrounding Citi.
But the bank is in an almost impossible position. Its shares have been in freefall, plunging 44 per cent just last week alone to end at an 18-year low of US$1.61 on Friday. The selloff has wiped away more than 90 per cent off its value in a year.
Once the world's largest bank, Citi is now only No. 5 in the US and its market value of US$10 billion last week is even below DBS' $18 billion. It has lost almost US$30 billion in the last 15 months and is running out of options.
Its spiral into crisis has been escalating for months. The shares crashed in November, forcing the US government to shovel in US$20 billion in cash to keep it afloat but the bleeding has continued.
It is now scrambling to stitch together a life-saving deal by asking holders of preferred shares - including the Government of Singapore Investment Corporation (GIC) - to take more direct stakes.
GIC holds convertible preferred shares in Citi that it bought for US$6.88 billion in January last year.
It can convert these into ordinary stock, but at a price likely to be more than 10 times Citi's current price. Until then, the preferred shares pay dividends every quarter at a rate of 7 per cent a year for as long as GIC wants to hold them.
Citi hopes to persuade GIC and other preferred stock holders, such as the Abu Dhabi Investment Authority and the Kuwait Investment Authority, to convert some of their stakes into common equity, according to news reports yesterday.
=> "Exceptional" Familee Kena conned again! Loss to be charged to Sporns' account again! Still donch want to REVOLT?
This would give the bank more capital and help it avoid drawing on another government lifeline, a move that would revive fears of nationalisation. If the government nationalises a bank, its common shares become virtually worthless.
GIC declined to comment yesterday on whether it had been approached by Citi and whether it was planning to convert its preferred shares to common stock.
Market watchers said it is not clear what the state-owned investment company would do at this point.
'It's a very unenviable position to be in,' said one local banking analyst, who declined to be named. At the point when GIC bought the preferred stock, Citi shares were hovering at about US$29.
The conversion price, an estimated average of the trading price of Citi shares in the few days after GIC's deal plus a conversion premium, is likely above US$30.
[COLOR=_______]'I suppose if GIC is really long term, and if they believe in the long-term viability of the recapitalised Citigroup, I think there's no reason not to convert their shares,' said the analyst.[/COLOR]
=> Psycho Sporns to accept the SCAM?
'But at some point, if they don't have that view any longer, there's no point throwing good money after bad.'
One concern is that if Citi strikes a deal with the government, GIC's shareholding would be diluted because Citi would have to issue more new shares. [COLOR=_______]A larger pool of shares means each existing shareholder has less overall ownership and may see his stock and dividend payments drop in value. [/COLOR]
If GIC had converted its preferred shares right after the purchase in January last year, it would have owned a 4 per cent stake in Citi.
Any eventual Citi deal would be under intense scrutiny by other battered US banks, such as Bank of America, that might be interested in a similar arrangement with the government.
[email protected] See also Money
</TR><!-- headline one : end --><TR>American government could end up owning up to 40% of the bank </TR><!-- Author --><TR><TD class="padlrt8 georgia11 darkgrey bold" colSpan=2>By Fiona Chan
</TD></TR><!-- show image if available --><TR vAlign=bottom><TD width=330>
</TD><TD width=10>
PHOTO: REUTERS
</TD></TR></TBODY></TABLE>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->THE United States government is on the brink of taking a huge stake in ailing Citigroup as the global financial crisis tightens its grip on the banking giant.
The dramatic step could involve the government taking a 40 per cent holding in Citi, a controversial move that will raise the spectre of nationalisation in America's beleaguered financial sector.
Citi is driving the move. It approached regulators yesterday with a plan for the government to convert some of its US$45 billion (S$69 billion) in preferred shares into up to 40 per cent of common equity, according to news reports.
But the Wall Street Journal said Citi executives hope to limit the stake closer to 25 per cent, which will allow it more independence.
The news helped Asian share markets and gave financial shares a boost in early trading on Wall Street last night as it may be seen to have taken out some of the uncertainty surrounding Citi.
But the bank is in an almost impossible position. Its shares have been in freefall, plunging 44 per cent just last week alone to end at an 18-year low of US$1.61 on Friday. The selloff has wiped away more than 90 per cent off its value in a year.
Once the world's largest bank, Citi is now only No. 5 in the US and its market value of US$10 billion last week is even below DBS' $18 billion. It has lost almost US$30 billion in the last 15 months and is running out of options.
Its spiral into crisis has been escalating for months. The shares crashed in November, forcing the US government to shovel in US$20 billion in cash to keep it afloat but the bleeding has continued.
It is now scrambling to stitch together a life-saving deal by asking holders of preferred shares - including the Government of Singapore Investment Corporation (GIC) - to take more direct stakes.
GIC holds convertible preferred shares in Citi that it bought for US$6.88 billion in January last year.
It can convert these into ordinary stock, but at a price likely to be more than 10 times Citi's current price. Until then, the preferred shares pay dividends every quarter at a rate of 7 per cent a year for as long as GIC wants to hold them.
Citi hopes to persuade GIC and other preferred stock holders, such as the Abu Dhabi Investment Authority and the Kuwait Investment Authority, to convert some of their stakes into common equity, according to news reports yesterday.
=> "Exceptional" Familee Kena conned again! Loss to be charged to Sporns' account again! Still donch want to REVOLT?
This would give the bank more capital and help it avoid drawing on another government lifeline, a move that would revive fears of nationalisation. If the government nationalises a bank, its common shares become virtually worthless.
GIC declined to comment yesterday on whether it had been approached by Citi and whether it was planning to convert its preferred shares to common stock.
Market watchers said it is not clear what the state-owned investment company would do at this point.
'It's a very unenviable position to be in,' said one local banking analyst, who declined to be named. At the point when GIC bought the preferred stock, Citi shares were hovering at about US$29.
The conversion price, an estimated average of the trading price of Citi shares in the few days after GIC's deal plus a conversion premium, is likely above US$30.
[COLOR=_______]'I suppose if GIC is really long term, and if they believe in the long-term viability of the recapitalised Citigroup, I think there's no reason not to convert their shares,' said the analyst.[/COLOR]
=> Psycho Sporns to accept the SCAM?
'But at some point, if they don't have that view any longer, there's no point throwing good money after bad.'
One concern is that if Citi strikes a deal with the government, GIC's shareholding would be diluted because Citi would have to issue more new shares. [COLOR=_______]A larger pool of shares means each existing shareholder has less overall ownership and may see his stock and dividend payments drop in value. [/COLOR]
If GIC had converted its preferred shares right after the purchase in January last year, it would have owned a 4 per cent stake in Citi.
Any eventual Citi deal would be under intense scrutiny by other battered US banks, such as Bank of America, that might be interested in a similar arrangement with the government.
[email protected] See also Money
