Citi Wants More Federal Aid

After ""Citigroup's"":http://www.citigroup.com stock tumbled last week - now trading below $3 share - bank executives have asked the federal government for additional assistance in strengthening the company. According to a _""Wall Street Journal"":http://www.wsj.com_ report, the move could boost the government's equity stake in the institution to 40 percent, although Citi officials hope to keep governmental ownership to around 25 percent.
The new round of government aid, which the administration has signaled it is willing to consider, would not necessarily require more public money. Instead, it would involve changing the terms of the government's existing Citigroup investments.
With recent capital injections into banks, the government received preferred shares which pay interest and include features to encourage repayment after a few years. Citi executives want the government to convert those shares to common stock, a course of action already proposed by banking regulators on ""Monday"":http://dsnews.comindex.php/home/news_story/2594 regarding future bank capitalization initiatives.
The _""Washington Post"":http://www.washingtonpost.com_ reported that such a change would not only benefit the companies by eliminating the dividend payments and the pressure to repay the total investment, but would create a vital accounting benefit for the banks - it would significantly improve banks' performance on a measure used by financial analysts called tangible common equity, which basically measures a bank's reserves against future losses, the _Post _explained.
The move would, however, dilute the value of existing stockholders' common shares.
The U.S. government currently holds an 8 percent ownership in the New York institution. Citigroup has already received $45 billion in government funding, along with federal guarantees against losses on more than $300 billion in illiquid mortgage assets -- aid that, _""Forbes.com"":http://www.forbes.com_ said, now exceeds the bank's market value.
According to a _""Financial Times"":http://www.ft.com_ report, Citi insiders said they expected a decision on the company’s future in the next few weeks but warned that it might have to come earlier if the bank's shares continue to fall in the coming days.