Struggling banking giant Citigroup, moving aggressively to shore up its equity base, announced a stock swap today that if successful will leave the government owning more than a third of the company and wipe out nearly three-quarters of existing shareholders’ stake, reports the Wall Street Journal.
The move is an acknowledgment that more than $50 billion in government capital and a backstop on more than $300 billion in troubled Citigroup assets haven’t been enough to stop the bank’s slide. It also represents a deepening of the government’s role in trying to prop up the U.S. banking sector.
Under the deal, Citigroup said it will offer to convert nearly $27.5 billion in preferred stock sold to private investors and the public and up to $25 billion in preferred stock bought by the government into common stock. The exchange, if fully executed, would leave the U.S. government with 36 percent of the bank’s shares. Existing shareholders’ stake would be cut to 26 percent. Shareholders will have to approve much of the common stock issuance.