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Here are five things you need to know about the development:
1. Tangible Common Equity: Citigroup’s share price has been hammered of late amid concern that the company doesn’t have enough capital to absorb its massive losses.
2. Is that Enough?
3. More cash: The government did not inject more cash into Citigroup as part of the plan.
4. Bank of America:
5. Management and directors: Today’s announcements included no plans for Citigroup CEO Pandit to step down. However, the board of directors is expected to get a makeover, with a fresh crop of independent directors coming on board “as soon as feasible,” according to the Treasury Department.
Uncle Sam To Take Up to 36% Stake in Citigroup: 5 Things to Know
By Luke Mullins
Posted February 27, 2009
Uncle Sam announced plans Friday to toss yet another lifeline to Citigroup by converting its preferred shares to common stock, a move that allows the struggling financial behemoth to boost a key capital ratio and hopefully reassure skittish investors. Under the plan, the Treasury Department would swap up to $25 billion of preferred stock as long as other big Citigroup investors do the same.
Shares of Citigroup rallied on Monday in the hope that the government’s plan would stabilize the company. Shares rose 19 cents, to $2.14. The stock was still down 68 percent for the year.
In many ways, Mr. Pandit is already grappling with the same problems that the government would face if it took control.
He was forced to split off Citigroup’s prized Smith Barney brokerage unit, for instance, to raise capital. He is also scaling back the company’s mortgage and proprietary trading operations. He has created a “bad bank” structure to hold Citi’s money-losing businesses, like private label credit cards and Primerica insurance, and tens of billions of dollars’ worth of toxic assets.
Citigroup, with operations in more than 100 countries, encapsulates many of the ills plaguing the global banking industry. In the future, the company will almost certainly be smaller and less profitable than it was in the past, analysts say.
The entire banking industry, after all, remains under acute stress. JPMorgan Chase, widely regarded as one of the healthier big banks, announced on Monday that it would sharply reduce its dividend to stockholders to conserve cash in case the economy deteriorates further.
The administration’s strategy seems to point in the direction of stopping short of outright nationalization — where the government takes control — and stepping up regulatory scrutiny.
The government has ordered Citigroup to sell businesses, shake up its board, cut its dividend and reduce risky trading. It has also moved to curb bonuses and perks like corporate jets. Moreover, Citigroup already relies on the government to finance its operations and insure hundreds of billions of risky assets.
3rd Rescue Would Give U.S. 40% of Citigroup
In August, Weill volunteered to give up retirement perks in exchange for early termination of a consulting contract he got when he retired as chairman in 2006.
That agreement, which was supposed to run 10 years and now will end in April, gave Weill millions of dollars in perks, including an office, car and driver, and use of company aircraft. On Feb. 1, he agreed to stop using the aircraft after the New York Post reported he used a jet in December to take a family vacation to Mexico.
His perks cost Citigroup $2.87 million in 2006, $2.31 million in 2005, $1.6 million in 2004, $1.59 million in 2003, $1.04 million in 2002 and $33,826 for three months in 2001, according to regulatory filings. He waived the annual cash retainer of $75,000 and $150,000 deferred stock award given to other non-employee directors, according to the March 2008 filing.
NEW YORK — Citigroup Inc., the U.S. bank that got a US$52 billion government bailout, said director Roberto Hernandez Ramirez will keep free use of company aircraft and an office after he steps down from the board in April. Hernandez, 66, will keep the perks because he remains non-executive chairman of Citigroup subsidiary Banco Nacional de Mexico, Mike Hanretta, a spokesman for the New York-based bank, said in an interview.
The bank said in the March regulatory filing that it “provided certain security services to Roberto Hernandez and members of his immediate family as well as office, secretarial and related services, and airplane and helicopter usage.”
Hanretta said Hernandez travels on his own plane and gets reimbursed for business trips taken in his capacity as Banamex chairman. Like other Citigroup directors, he is reimbursed at a commercial rate when he travels for board business. He doesn’t get reimbursed for personal travel, Hanretta said.
The benefits, also including helicopter use and security for Hernandez and his family, cost US$2.61 million in 2007, according to a March 2008 regulatory filing.
Updated Friday, February 20, 2009 11:30 am TWN, Bloomberg
Citigroup director to keep plane, helicopter, office