After reading this piece I went here

http://www.foxbusiness.com/story/markets/futures-slightly-lower-government-announces-citi-deal/

and read this

The new shares issued to the government would carry a conversion price of $3.25 a share, according to Citigroup, much higher than Thursday’s closing price of $2.46 a share.
(does this mean the taxpayer is taking a loss straight up?)

However, shares of Citi were now moving sharply lower by more than 50% heavy pre-market trading, pushing the financial company’s stock to as low as $1.20 a share. It was dragging down the other financial houses such as Bank of America (BAC: 4.15, -1.1, -20.95%), JPMorgan Chase (JPM: 23.03, n.a., n.a.%) and Wells Fargo (WFC: 14.28, n.a., n.a.%) as well.

Based on the maximum conversion rate, the conversion program would give the U.S. government a 36% stake in the struggling financial giant.

Citigroup said that the conversion program helps boost Citi’s tangible common equity, which is the gauge the U.S. Treasury Department is using for its banking industry “stress tests,” from $29.7 billion to $81 billion.

“This securities exchange has one goal — to increase our tangible common equity,” said Citi Chief Executive Vikram Pandit in a statement.

So is all of this so that Citi can pass some kind of government imposed test so it can keep the taxpayers money its already got and get more of it in the future?

Dow Futures down 140 as of this post.

Popcorn being made along with some fresh lemonade. I “hope” there’s no more “change” today.

Cheers !

It sounds from what you said that we can halve the value and then have it again, so does that mean that this morning over $20B of taxpayer money vanished into thin air?

27 / 2 = 13.5 / 2 = 6.75 and 27 – 6.75 = 20.25

<Since the entire market value of Citigroup’s common stock was slightly below $27 bn as of yesterday’s close, the deal amounts to creating about as much new stock as existed beforehand. So each existing share is now worth about half as much.

And in pre-market trading, they’re down just about… half. See, financial modeling works after all. The massive dilution and the fear of more to come (possibly affecting other banks) is weighing heavily on stocks this morning, and they will open sharply lower.

Does that mean that Obama holds 36% of the vote on board decisions or can a lot of that be nonvoting shares?

My take is that CITI is technically insolvent, however the government did not want to take it over for several reasons, i) size matters, it’s just too big, ii) the ‘systemic” risk we are always hearing about, and iii) Robt Rubin had gotten huge soveriegn and wealth funds to invest and leaving those people at the alter with a failed bank would have impacted the Dem’s negatively going forward.

They want to make the claim they are now the better party on the economy and if CITI fails, with Rubin having been at the helm during the run up, their argument starts to have holes shot in it. When their vaunted Treasury Secretary that they like to hold up as an example as all things great in their party would over see the largest bank failure in history it doesn’t look good.

How are these not zombie banks?

Black, or anybody, please explain to me why these banks are crucial to the system. Market has pronounced judgement, these things are penny stocks now. Are people still doing business with Citi? Real business?
Citi is dead. Please explain why a dead bank must be kept alive for the good of the system. The whole notion doesnt pass the smell test.

This whole thing is people with influence using said influence to avoid taking their medicine. Corporate welfare is bad enough, its even worse when people pretend that its crucial we indulge.

They create the impression that this makes Citi more risky. Of course, as Francis notes, it makes it safer. More equity, more safety. Of course, more equity, more dilution for the existing shareholders. Life is tough, and then you die. :>)

Also, Citigroup is the entity with the shares, not Citibank. The bank holding company encompasses the bank, the brokerage (Citi/Smith Barney) and the other subsidiaries.

The interests of the nation and the shareholders are not the same here. The national interest is to restore confidence in the banks by improving their capitalization. The private shareholders’ interest is in the stock price.

I didn’t feel that way until recently, but after this week, they can burn.

For more than twenty years I’ve had a good relationship with the bank, but they’ve screwed me on rates for the last time. I’m not good at opening mail and sending out checks on time, so I setup my payments to go out automatically. Last month what I owed went up a bit more than I expected, and the payment I sent wasn’t quite enough, so they defaulted my account over $12, Even though having caught it on Friday, they got $25 one day late. The same week I got a surprise from Prudential about a policy my Dad bought for me about the same 20 years ago. Premiums for that were going to triple. So the Prudential policy is getting cached in, and the payment is paying off the whole credit card. Both institutions lose out on this deal. Prudential won’t get any more premiums from me, and Citibank won’t get any interest payments from me. Granted, $10K ain’t much compared to their multi-trillion dollar problem, but that’s how the economy shrinks-a whole lot of little people like me getting tired of getting screwed by places like Citibank that want one set of rules for themselves, and a different set for peons. I’d be perfectly willing to put up with the $39 late fee, but not 24.9% on the balance for something that close.

I just cound not stomach that the next time they send out my new card, it will be a red and blue picture of the Obama on it.

Credit cards will be the only currency his profile will deserve, once this is all said and done.