Citi might be the next in line to buy back its stake from the government after it received $45bn in government aid when the crisis struck last year. Once in the form of preferred shares, the US government had the option of converting its stake to common shares, which upon conversion last week gave it 7.7bn shares.
Top Citigroup executives have been devising plans for a possible multibillion-dollar stock offering in which the New York company would issue new shares to the public, while the Treasury Department would sell at least a portion of its Citigroup holdings, according to people familiar with the matter.
Citigroup hasn’t held in-depth talks with the government. Over the weekend, Citigroup called a Treasury official and said the company wanted to start talking about paring down the Treasury investment, according to people familiar with the matter. On the call, Citigroup officials said they planned to raise outside capital in order to repay the outstanding bailout funds. Treasury officials responded to Citi that they didn’t object to the company paying back Washington as long as Citi first raised offsetting capital, these people said.
Two points are probably worth raising with regard to this issue: the toxic assets are still in the balance sheet of the firm and it might be premature to already begin reducing the American people’s stake. These were raised by both Calculated Risk and Clusterstock blogs:
CR: So the U.S. still holds $20 billion in preferred stock. This would be a start, although it might be premature considering all the toxic assets Citi probably still holds.
Clusterstock: [I]t will be regrettable if Citi does manage to get out of the program without having gone through a meaningful change in its structure. The problem with Citi is not just that it had a horrible balance sheet. It’s also badly structured and seemingly unable to execute good risk management. The bank has nearly collapsed during based crises, and if there’s another one, it’ll probably be on the front lines of that.
And I wouldn’t say I disagree.