Government In Talks To Take Up To 40% Stake In Citi

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The big story today is discussions between government officials and Citigroup executives about the government taking up to a 40% stake in Citi.  According to a front page article in today’s Wall Street Journal, the government would convert some of its $45 billion in preferred stock into common stock.

At the end of the 4th quarter, Citi had 5.45 billion shares outstanding giving it a market cap around $11 billion at the current share price around $2.  If the government converted $7 billion of its preferred stock into common stock at the current price, that would give it 3.5 billion of about 8 billion shares oustanding – around 40%.

I don’t really see the point of this except that it will boost Citi’s Tangible Common Equity (TCE) ratio which apparently the government will be focusing on in their coming “stress test”.  It’s not adding any new money to Citigroup, just shifting the way money already injected is characterized.

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