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Citigroup finalized plans Wednesday to convert its US Treasury capital injection into common stock, a move that gives the government a major stake in the ailing banking group.
Citi said the conversion would affect a total of 58 billion dollars in preferred shares, including 25 billion from the US government and other investments from the government of Singapore and others.
The US government will have a 34 percent stake in Citi under the expanded conversion, Citi officials said. Existing shareholders would have their stake limited to 24 percent.
The move reorganizes Citi’s capital without adding new funds, but increases the so-called common equity which is considered more robust by banking regulators.
“Following completion of the exchange offers, Citi will be among the best capitalized banks in the world,” said Citi chief executive Vikram Pandit.
“Our employees have worked tirelessly to get Citi fit by taking control of our balance sheet and expenses. Their hard work has helped position the company to withstand a challenging market environment and to return to sustained profitability.
“We have the right strategy, the right structure and the right people. I’m confident that we will continue to make progress and that the strength of our franchise will be evident as the economy improves.”
The conversion does not call for more government funds but helps shore up the capital position of Citi, once the world’s biggest financial services firm which has received 45 billion dollars in bailout funds from the government.
The move avoids a feared nationalization of Citi, once the world’s biggest financial firms, but the conversion gives the government effective control as the bank’s largest shareholder.
The Government of Singapore Investment Corporation (GIC) and a Saudi prince were among the other investors converting to common stock.
The government moved to shore up the capital base of Citigroup amid market jitters over the strength of US banks saddled with possibly trillions of dollars of soured home mortgage securities.
The government has persistently rejected rumors that it wanted to nationalize banks although it had already taken effective control of several big enterprises such as insurance giant AIG on the verge of collapse amid the mortgage crisis, which triggered global financial turmoil.