Citigroup Inc. (C: 3.48 0.00 0.00%) finally agreed to bolster its common equity position by swapping $58 billion of preferred stock on Wednesday in a move that will make the federal government its largest shareholder.
Chief Executive Vikram Pandit said “Following completion of the exchange offers, Citi will be among the best capitalized banks in the world.” As per the highly diluted exchange offer, the ailing bank will convert a part of the Treasury’s $25 billion preferred stock into common shares giving the US government a 34% stake in the company.
Citi had issued these preferred shares to the federal government while taking $45 billion under the Troubled Asset Relief Program at the height of the financial crisis. When regulatory stress tests showed last month that Citi needed a $5.5 billion buffer in case of future losses, Citi chose to convert preferred shares to meet the shortfall.
The exchange with a $3.25 per share conversion rate is expected to close around July 30 and will increase the ailing banking giant’s shares outstanding by 75%.
Citi shares were up nearly 4% to $3.54 at noon after touching an intraday high of $3.59 earlier in the session on the New York Stock Exchange.
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