A group of inv
estors who never wanted to have a voice in the management of Citigroup is about to find itself in the role of Citi's majority shareholder.
Last February, Citigroup exercised its right to convert its three convertible preferred stocks (C-I, C-P and C-M) to Citi common shares.
Then in March, Citi filed with the SEC to convert, on a voluntary basis, other Citi preferred stock issues to common.
Then on Friday, May 8, 2009, in response to the government's bank stress tests, Citi announced that it was expanding its voluntary preferred stock conversion to include even more issues, again on a voluntary basis.
If enough shareholders volunteer, Citi estimates that it will not only bump its regulatory profile well into the respectability range, but will also save itself a bundle in what has become a mountain of dividend expense owed to preferred stockholders every quarter.
The upcoming conversion also includes the TARP preferred shares held by the U.S. government.
Using Citi's estimates, converting these preferred shares (government, privately held and publicly traded) to common stock shares will boost the number of common shares outstanding from its current 5.5 billion shares to, get this, about 23 billion shares - in one step.
Current holders of Citi's common stock, who now own 100% of the company, are, under these estimates, going to hold a miserly 24% after the conversion. That's quite a haircut.
And who will the new majority shareholder be? Media stories over the last several weeks would have us believe that the U.S. government will end up in the driver's seat at Citi, but that's actually not the case.
Answer: the preferred stockholders who choose to convert their shares.
The conversion, using Citi's conversion estimates, will leave the current Citi common shareholders with only 24% ownership and the U.S. Government with 34%. The new majority shareholder will be the preferred stock holders who volunteer to convert their shares resulting in 42% ownership of Citi common stock (includes privately held, publicly traded traditional preferreds and trust preferreds converted to common).
Upon approval of Citi's plan, and in the event that Citi's conversion estimates hold true, it is Citi's preferred stockholders who are going to not only come to Citi's rescue here but will end up being Citi's largest common stock shareholder.
By originally investing in non-voting preferred shares, this group has a specific and expressed, by virtue of their original investment choice, desire to not include itself in the management of the company.
How ironic that it now looks like they are going to be running the place. All Hail preferred stock investors!
Many Happy Returns.
estors who never wanted to have a voice in the management of Citigroup is about to find itself in the role of Citi's majority shareholder.Last February, Citigroup exercised its right to convert its three convertible preferred stocks (C-I, C-P and C-M) to Citi common shares.
Then in March, Citi filed with the SEC to convert, on a voluntary basis, other Citi preferred stock issues to common.
Then on Friday, May 8, 2009, in response to the government's bank stress tests, Citi announced that it was expanding its voluntary preferred stock conversion to include even more issues, again on a voluntary basis.
If enough shareholders volunteer, Citi estimates that it will not only bump its regulatory profile well into the respectability range, but will also save itself a bundle in what has become a mountain of dividend expense owed to preferred stockholders every quarter.
The upcoming conversion also includes the TARP preferred shares held by the U.S. government.
Using Citi's estimates, converting these preferred shares (government, privately held and publicly traded) to common stock shares will boost the number of common shares outstanding from its current 5.5 billion shares to, get this, about 23 billion shares - in one step.
Current holders of Citi's common stock, who now own 100% of the company, are, under these estimates, going to hold a miserly 24% after the conversion. That's quite a haircut.
And who will the new majority shareholder be? Media stories over the last several weeks would have us believe that the U.S. government will end up in the driver's seat at Citi, but that's actually not the case.
Answer: the preferred stockholders who choose to convert their shares.
The conversion, using Citi's conversion estimates, will leave the current Citi common shareholders with only 24% ownership and the U.S. Government with 34%. The new majority shareholder will be the preferred stock holders who volunteer to convert their shares resulting in 42% ownership of Citi common stock (includes privately held, publicly traded traditional preferreds and trust preferreds converted to common).
Upon approval of Citi's plan, and in the event that Citi's conversion estimates hold true, it is Citi's preferred stockholders who are going to not only come to Citi's rescue here but will end up being Citi's largest common stock shareholder.
By originally investing in non-voting preferred shares, this group has a specific and expressed, by virtue of their original investment choice, desire to not include itself in the management of the company.
How ironic that it now looks like they are going to be running the place. All Hail preferred stock investors!
Many Happy Returns.
