Citigroup Inc. on Wednesday finalized an agreement with the federal government that clears the way for its highly diluted stock exchange to take place, boosting common-equity levels and giving the U.S. a one-third stake in the banking giant.
Assuming full conversion rates, Citigroup will swap some $58 billion of preferred stock and trust-preferred securities into common stock, boosting shares outstanding some 75% when completed around July 30. After which, "Citi will be among the best capitalized banks in the world," said Chief Executive Vikram Pandit.
The stock swap, announced in late February shortly after Citigroup shares briefly plunged below $1, was supposed to happen in April but was slowed by negotiations between the bank and federal officials over details of the complicated transaction. The company said Monday that the offer would be launched this week.
The conversion rate will be $3.25 a share, a 32% premium to the closing price the day before the exchange offer was announced. The stock was up 1.5% premarket at $3.46 amid a broad advance.
Meanwhile, Citigroup also announced its board has approved a 3-year tax-benefits preservation plan so the company doesn't potentially lose the ability to use tax losses on future income if holders of at least 5% of the company's stock substantially increase their holdings or an investor boosts its stake above 5%.
The plan includes giving one preferred-share purchase right for each common share outstanding later. Those rights, which give holders the right to buy common stock at a 50% discount to that current price, is intended to keep investors from substantially building stakes in the company, and under federal tax laws putting the tax-loss assets at risk of being forfeited.