Citigroup Inc. said Wednesday that it has finalized an agreement with the federal government that clears the way for a highly diluted stock exchange to take place, boosting common equity levels and giving the federal government a one-third stake in the New York company.
Assuming full conversion rates, Citi would swap $58 billion of preferred stock and trust-preferred securities into common stock, boosting shares outstanding by 75% when the exchange is completed around July 30.
After the exchange, "Citi will be among the best capitalized banks in the world," said Vikram Pandit, its chief executive officer.
The stock swap, which was announced in late February, shortly after Citi shares briefly plunged below $1, was supposed to happen in April, but it was slowed by negotiations between the company and federal officials over details of the complicated transaction.
Citi said Monday that the offer would be introduced this week.
The conversion rate would be $3.25 a share, or a 32% premium over the closing price the day before the exchange offer was announced.
Citi's stock rose 2.05% on Wednesday, to close at $3.48.
Also Wednesday, Citi announced that its board has approved a 3-year tax-benefits preservation plan meant to preserve the company's ability to use tax losses on future income in the event that holders of at least 5% of its stock substantially increase their holdings, or an investor boosts its stake above 5%.
The plan includes giving holders the right to purchase one preferred share for each common share outstanding later.
Those rights, which give holders the right to buy common stock at a 50% discount to the current price, is intended to keep investors from substantially building stakes in the company, and thus putting the tax-loss assets at risk of being forfeited under federal tax laws.