Citi Approaches Feds

Source: Politico
The federal government is in talks with Citigroup Inc. to increase its ownership stake in the troubled bank, the Wall Street Journal reported Sunday, citing sources the newspaper did not identify.

The government could take as much as a 40 percent share of Citigroup’s common stock, stoking fresh speculation about the nationalization of several large U.S. banks amid steep losses in the financial sector and potentially triggering a new round of stock selling when the markets open on Monday.

Source: Wall Street Journal Online
U.S. Eyes Large Stake in Citi
Taxpayers Could Own Up to 40% of Bank's Common Stock, Diluting Value of Shares

Citigroup Inc. is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people familiar with the situation.

While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup's common stock. Bank executives hope the stake will be closer to 25%, these people said.

Any such move would give federal officials far greater influence over one of the world's largest financial institutions. Citigroup has proposed the plan to its regulators. The Obama administration hasn't indicated if it supports the plan, according to people with knowledge of the talks.

Under the scenario being considered, a substantial chunk of the $45 billion in preferred shares held by the government would convert into common stock, people familiar with the matter said. The government obtained those shares, equivalent to a 7.8% stake, in return for pumping capital into Citigroup.

The move wouldn't cost taxpayers additional money, but other Citigroup shareholders would see their stock diluted. A larger ownership stake by the government could fuel speculation that other troubled banks will line up for similar agreements.