CitiTARP: Worst Convert Ever

The arithmetic on Treasury’s conversion of the TARP Preferred Stock
investment into Citi’s (C) common is troubling.

Last Friday Treasury agreed to convert $25 Billion of the TARP Pref for 36% of the common of Citi. The problem is that as of the close of business on Friday 36% of Citi is only worth $3 billion. This convert looks like a $22 Billion loss.

If your broker had slipped a few of these Preferreds into your account last fall and you joined the Feebs on Friday in the convert to Common your account would be down 90% in fewer than four months. Fleeced.

The Tape never lies. C closed at $1.50 on Friday. It is very hard to hide the value of 36% of Citi. It would appear that Mr. Geithner has a Mark To Market problem. He is facing the pricing dilemma of, “What I paid for it, what I think it may be worth over time, what the distressed market values it at today”.

Possibly now that Mr. Geithner is on this hot seat there will be some fast action from DC. A twenty-four month suspension of all Mark to Market requirements. By the time twenty months rolls around there will be so many losses that the Citi convert loss will be buried.

Mr. Geithner is getting crunched on the portfolio from the Bear Sterns deal that he engineered. The Citi Convert deal is also a stinker. The rest of the TARP Preferred portfolio is underwater.

Mr. Geithner is the only one still standing from the TARP I Treasury deal. If his plan is to pay for the losses of TARP I with the remaining funds in TARP II he is in for a rude awakening. He needs more chips to play this big game. The market knows that.

Disclosure: None

Comments

[User 304810]

I think your math is problematic..as you are assuming that the conversion does not enlarge the share holding..in actual fact, upon conversion, the present shareholdings only constitute a small faction of the enlarged base, assuming the conversion of the said pref holders...

2009 Mar 02 09:17 AM

[Bruce Krasting]

Okay, then what is the value of the 36% of citi common based on a share price of $1.50?

bk

2009 Mar 02 09:53 AM

[Stewie]

What ? Your analysis is flawed in so many ways I really don't know where to start.


On Mar 02 09:17 AM User 304810 wrote:

> I think your math is problematic..as you are assuming that the conversion
> does not enlarge the share holding..in actual fact, upon conversion,
> the present shareholdings only constitute a small faction of the
> enlarged base, assuming the conversion of the said pref holders...

2009 Mar 02 11:11 AM

[Bruce Krasting]

I would love to be proved wrong on this. Contest: What is the 36% of cit that the FEEBS now own worth?? Big prizes for the right answer.

2009 Mar 03 08:42 AM

[grouphero]

You better stop writing article on this or any other site. You don't even know how it works and dare to write on something that you are not familiar with. What is your educational background and what kind of degree you have?

2009 Mar 03 12:47 PM