Citi Deal – Outrageous, embarrassing, Geithner gifting as much taxpayer money to Citi stakeholders as possible.
Dreamy Pandit: This Deal Should Put Nationalization Fears To Rest (C)
Courtesy of Henry Blodget at ClusterStock
"In many ways for those people who have a concern about nationalization, this announcement should put those concerns to rest."
We guess that’s why the stock is down 30% this morning–because nationalization fears have been put to rest. After all, if the preferred shareholders convert, Citi will now have $80 billion of common equity, which is no doubt enough to absorb the future losses on its crumbling $1+ trillion balance sheet (the company only lost $10 billion last quarter!).
But remind us again why these preferred shareholders are going to convert? Thanks to the ever-generous Timothy Geithner, the conversion price is $3.25. Citi’s stock is now available for $1.80. So why, exactly, are the private-market preferred holders like Prince Alwaleed going to give up their preference and fat preferred dividend to overpay for common stock?
How much longer are we going to have to go through this? At this point, it’s just plain embarrassing. Can’t we just grab the place, chop it up, and sell off the pieces? What the market’s telling us this morning is that that outcome is inevitable, so we might as well get on with it.
Geithner’s Latest Gift To Citigroup Owners Finally Done*, Henry Blodget
Excerpt from Geithner’s Latest Gift To Citigroup Owners Finally Done:
The announcement is now out… And it’s not as egregious a giveaway as initially reported! Geithner is only paying about 30% too much for your Citigroup common stock instead of 100% ($3.25 a share instead of $5). 
Earlier: The New York Times says the deal is done. The Wall Street Journal said the deal was done and then printed a correction saying it wasn’t done. Whatever. It’s done.
And here’s the deal:
You, the taxpayer, will be converting your dividend-paying Citigroup preferred stock into non-dividend paying Citigroup common stock. And because Treasury Secretary Tim Geithner seems determined to gift as much of your money as possible to Citigroup stakeholders as possible, you’ll be doing this at $5, more than twice Citigroup’s closing share price…
(What should Geithner have done? Forced Citi to write down the value of its assets to nuclear-winter levels, and then converted a bunch of Citigroup debt to equity–including the US’s preferred stock. Instead, he just gave your money away.
What is Geithner thinking here? He’s desperate to avoid taking majority ownership of Citi, in part because Citi’s gigantic hairball of a balance sheet will suddenly be put on the US’s books. He also doesn’t want to send a paroxysm of panic through the bank debt market by notifying bank debt holders that the bonds they own aren’t, in fact, as safe as Treasury Bills but pay much higher interest–which is currently the case. So Geithner’s capping the US ownership at 40% and keeping bondholders whole.)
The Treasury Department reached a deal late Thursday to take a stake of 30 to 40 percent in Citigroup as part of a third bailout of the embattled bank, according to several people close to the deal…
Full article here.
