US Government may increase stake in troubled Citigroup

| February 23, 2009 | 0 Comments

According to the Wall Street Journal, the US Government is in talks with Citigroup to increase its stake in the struggling bank.

Shares in Citigroup plummeted for a sixth consecutive session last Friday amid speculation that it would have to be nationalised in order to survive.

It is believed that the Government could end up owning up to 40% in Citigroup, which was once the world’s largest financial institution, but has lost its status due to toxic loans.

Last autumn, the bank had to be bailed out by the Government in a deal worth $45 billion (£31 billion).

According to sources, the Government could convert a chunk of the $45 billion into common stock. While this plan would not cost the taxpayer, it would mean shareholders see their stock diluted and the Government would have greater power over the US number five.

Meanwhile, it has been reported that Citigroup hopes to convince private investors to change their preference shares into ordinary shares, to help strengthen its capital base.

Citigroup’s Tier-1 capital ratio was at 11.9% at the end of December - one of the highest in the industry.

Meanwhile, last month, the banking giant said it was proposing to split the firm into two separate businesses to restore profitability. Citigroup said it would separate the company, for management purposes, into two separate businesses - Citicorp and Citi Holdings.

Citicorp will manage the company’s traditional banking work, while Citi Holdings will handle the firm’s riskiest investment assets.

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