Know Your Citi Conversion Break-Even Point

Those choosing to take Citigroup up on its offer to convert your Citi trust preferred stock shares to Citi common stock shares should know your "break-even point."

Your break-even point is the market price that Citi's common stock must reach for you to hold the same value of common stock as you did preferred stock. Put another way, when the market price of Citi's common stock exceeds your break-even point, you are money ahead by having converted your preferred stock shares (i.e. you are at a point where you have an unrealized capital gain).

This table allows you to do two things - (1) determine your break-even point and (2) click on the table to open a new window showing you Citi's current common stock market price.

Look down the first column of the table and find the purchase price that you originally paid for the Citi trust preferred stock shares that you are converting. Once you find your purchase price, look at the value in the second column next to your purchase price. This is your break-even point; if the market price of Citi's common stock moves above this break-even price you are money ahead for having converted your preferred stock shares.

Once you find your break-even price, click anywhere on the table and a separate window will open on your screen that shows you the current market price of Citi's common stock. You are hoping to see a value for Citi's common stock that is greater than your break-even price from the table.

Notice that this table does not take into account any dividends that you may have already received from your Citi trust preferred stock shares.

You can return to this blog any time to find this article again and click on the table to see how your break-even price compares to the current market price of Citi's common stock.

Many Happy Returns.

Citi Preferred Stock Holders - Decision Time

Citigroup is currently in the process of converting a variety of its preferred stock issues to common stock. The conversion is being performed on a voluntary basis.

If you hold Citi preferred stocks that are the subject of the conversion (see below table) you should have received an information package from Citi, via your broker, on or about July 1, 2009. If you did not receive the information package, and feel that you should have, please contact your broker immediately.

The expiration date of Citi's conversion offer is July 24, 2009.

However, Citi has made it very clear that to allow for processing time, shareholders who wish to volunteer their shares ("tender") for this conversion should do so at least five business days prior to this expiration date.

So if you are intending on tendering your preferred stock shares under Citi's offer, you should do so by close of business tomorrow, Friday, July 17, 2009.

The Citi information package explains the process for tendering your shares.

The Citi preferred stock issues that are the subject of their voluntary conversion program are listed in this table.

Special Note To CDx3 Notification Service Subscribers: Please check the CDx3 Flash email message that you received on Thursday, June 11, 2009 for a similar table that identifies which of these Citi preferred stocks are CDx3 Preferred Stocks (i.e. meet the ten selection criteria from chapter 7 of Preferred Stock Investing)

Remember too that Citi is going to convert these preferred stock shares to common stock shares in the prioritized order shown on this table until they have reached their goal. So it is possible that even if you volunteer your shares for conversion, they will not end up being converted.

Citi will continue to pay the dividends associated with these preferred stocks for all holders whose shares are not converted under this offer. You can read more about the Citi conversion offer here.

Whether or not to convert your preferred shares to Citi common stock is a personal decision that only you can make. Whatever decision you make, I wanted to remind you that, per Citi's instructions, you have until close of business tomorrow to make it.

Thank you for your interest in my preferred stock research and my book, Preferred Stock Investing.

Many Happy Returns.

Doug:

Several of the Key preferred stocks are now subject to potential exchange for Key common stock. The price for conversion depends on the particular issue. Do you have any comment or suggestions on whether Key preferred owners should accept this offer? The Key prospectus notes that Key "currently" plans to continue dividend payment on its preferred shares if they are not tendered for exchange.

Rich J.

From The Citi Trading Blogs

Citi preferred stock shareholders are trying to decide whether or not to convert their preferred stock shares to Citi common stock. While the 7.3 to 1 conversion ratio is appealing, key to making this decision is the resulting, post-conversion value of their Citi common shares. Preferred shareholders know, sitting here today, what their preferred shares are worth; they do not know what their common shares will be worth if they choose to convert.

I've been watching for some type of supportable concensus to build. Like many, I read everything I can find regarding Citi and this conversion. And I watch blogs that are dedicated to the interests of those investing in Citi equity. I also subscribe to a service that finds new blog postings that mention the phrase "preferred stock" and sends me a copy.

After digesting all of this, I can say with a certain amount of authority that there is absoluetly no consensus whatsoever regarding the effect that this historic conversion of Citi preferred stock shares is going to have on the common stock market price.

Citi doesn't even know. While Citi seems to think that the market price of their common stock is going to go/stay down after this conversion, there is substantial evidence to suggest that Citi has no clue how low it might go. Citi has filed with the SEC to perform a reverse stock split after the conversion, but the filing provides Citi's Board of Directors with a menu of seven split ratios that they might pick from (or not).

If Citi is unable to judge what the value of their common shares is likely to be after this preferred stock conversion is completed (end of this month), how are preferred shareholders suppose to (a) figure it out and (b) make an educated decisision whether or not to convert their shares?

To see examples of the confusion on Citi blogs (click here and click here). These are typcial of the discussions that I see every day. Interesting, yes; Definitive, no.

I'll keep looking. But for now there is just no consensus regarding what Citi preferred stock shareholders can expect of the value of their holdings, post-conversion. If you're feeling like you are short the information that you need to make a good decision, you are not alone.

Many Happy Returns.

downgraded banks

I was wondering if you owned the downgraded banks in your portfolio, at price fairly near current value, would you keep them or sell them?

Phil Flint

Well I received my packet from Citi today identifying the proposed exchange of the preferred stock at 7.3 /1 exchange ratio. Also in the packet was a letter that identified their intent to do a reverse split. If exchanged right now the 7.3 would amount to well less than the $25 / share of C-G ($21). My guess is that as soon as the market finds out that there is going to be a reverse split the price will go down even further so I would not expect the price of C-G to increase towards $24-25 / share as once thought. Conversely, I’m thinking it will be down to $15 or less by the end of the month when the exchange is due and the price of the common will be below $2.50. Guess they will be paying the 7.875% to a lot of folks for a while. Anyone believe differently?

ChuckJ