Citigroup Files to Increase Shares Outstanding to 60 Billion

Citigroup (C) filed a proxy Thursday in which it disclosed it was seeking to increase its authorized common shares outstanding from 15 billion to 60 billion. While the preferred to common conversion was expected to increase the total common from 5.4 billion to 22.8 billion, the 60 billion number, which obviously was not picked out of a hat, implies that the bank will likely proceed with its creeping equitization plan and potentially dilute the Citi common stock by more than another incremental 100%.

In the meantime, the Common-Pref arb holders are sweating their gonads off day after day, as the exchange which was supposed to close months ago, is still off somewhere in the nebulous and stagflationary future. Of course, when you are paying 100% annual repo rates for those 7.3 shares of common short, every single day bites more and more of your "guaranteed" IRR off. Bloomberg had this to say on the persistent mirage that is the closing date:

Citigroup Chief Financial Officer Edward “Ned” Kelly said on a May 7 conference call with analysts that the SEC must sign off on the exchange documents before the offer can proceed. The bank separately needs to complete an agreement with the U.S. Treasury Department to convert as much as $25 billion of government-held preferreds into a 34 percent common stake.

Once the exchange offer is formally extended, the bank will keep it open at least 20 business days before closing, according to the filing.

“We plan to launch this as quickly as we can,” Kelly said on the May 7 call.

In a note to investors yesterday, Sanford C. Bernstein & Co. analyst John McDonald wrote that “questions remain about both the timing and amount” of the pending offer.

“While it is difficult to gain any clarity on this issue, we sense that Citi will likely complete its preferred-to-common exchange in early- to mid-third quarter,” he wrote.

Looks like Ned and the SEC are fully set on precipitating total and complete IRR shrinkage, and wrecking whichever funds are still left in the trade. Once that is done, the subsequent 100%+ dilution once the CRE volcano finally explodes, will make any remaining longs very unhappy.

Comments

[doubleguns:]

This gives them the opportunity to dilute the tax payers interest and reduce government power/control.

Jun 04 11:11 AM

[Kelvin Schulle:]

this is very positive for the company hence for the common share holders, that is why you see C trading 7% higher in the morning, much more rally ahead IMHO. Not surprised to see Citi at $20 in 2-3 years..

Jun 04 11:38 AM

[MIKETRADER:]

we are nto sweating our gonads mate... were pretty happy with the increase means more arbitrage gains on further down the line CITI ETRUPS AND TRUPS.... if you had lock your profit in time, who cares if citi goes to 2 dlls again, "a battle is won before its even fought"....

BTW i dont know about that 100% repo rates, more like 6%, maybe change your broker....

Jun 04 11:54 AM

[CautiousInv...:]

With the death of PPIP and Moody's dire warnings about bank sovency, they may wish to authorized common issuance.

Jun 04 11:59 AM

[jeffereyf20...:]

As you can see C already had 15B authorized shares and had done nothing with those shares...so they had almost 3 x the authorized shares as issued. C can ask for as many shares as they want in case they need to do anything over the next 2 years and will not have to go through this same process. To they will be issuing all of these shares is a huge stretch.

Jun 04 03:17 PM

[think befor...:]

Dilution is a function of value that the new shares are offered not the number of shares. You might want to learn a little more about the subject before you write on the subject!

Jun 05 02:23 PM

[singh:]

i had a dream. i saw C at 4-5-6 dollar but there was no date in dream.

Jun 27 12:09 AM