The government’s stake in Citi: Why only 40%?

The WSJ is reporting that Treasury is thinking about converting the preferred shares in Citi that cost it $45 billion (and that’s not counting government guarantees of a $301 billion Citi loan pool) into a 25% to 40% share of the company’s common stock. This even though all the common shares of Citi could (in theory, at least) have been purchased this morning for just over $10 billion.

The movements of Citi’s stock price have been driven lately mainly by speculation over how the government will treat current shareholders if it does any more bailing out of the bank, so it’s hard to say what exactly that $10 billion market cap really signifies. Still, the deal being envisioned at the moment doesn’t seem like a good one for taxpayers. And while I get why the Paulson Treasury, at the height of the panic last fall, put averting financial collapse ahead of getting the best possible deal for the government, it’s far less clear to me why the Geithner Treasury should be doing anything but trying to drive a hard bargain with the most troubled big banks. The financial panic (at least the particular panic that gripped markets last fall; I’m not saying there won’t be another, different one later) has passed. Now the goal should be to reboot the financial system. To do that you need to force out most of those shareholders and managers who are still hoping against hope for a return to the old financial system. And a 40% stake in Citi doesn’t really seem to get us to that point.

Stocks Rally Further in Run-up to EU Summit

MOSCOW — Global stocks enjoyed one of their best days in weeks on Tuesday ahead of a summit of European leaders that’s expected to be dominated by calls to boost economic growth.

Europe remains the focus of attention across all financial markets in the run-up to the June 17 Greek election that could go a long way to determining the country’s membership of the euro as well as the future of the single currency zone.

plukasiak

why not go all out, and announce that the government will nationalize Citibank on wednesday, driving the price down to the level of “penny stocks”?
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What bugs me most about this whole dance it that it allows time for a “run” on uninsured deposits held in Citibanks off-shore subsidiaries. The looming threat of a takeover practically guarantees that uninsured deposits will be withdrawn from the bank, leaving the taxpayers holding a much bigger bag.
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My best guess is that Geithner fears that nationalizing citibank will be perceived as just the “first” step — and that will become a self-fulfilling prophecy as big depositors abandon all but the most solid banks, forcing everyone else into illiquidity.
bryanfromhouston

But the real question, Justin, is just how much pressure are Geithner and the Big O feeling from the Chinese and the Saudis who hold a substantial portion of equity in our banks?
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Behind the scenes there are phone conversations that would make our heads spin is my guess.
bryanfromhouston

I’ve come to the conclusion that nothing short of a complete reset will work. It is time to call for a bank holiday and do the stress tests. If the banks can stand, then they stand. If they don’t, then let Sheila and the FDIC do their Jobs! Why haven’t you guys mentioned Title 12, Sec. 18310 or PCA (prompt corrective action)?????
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http://www.huffingtonpost.com/william-k-black/why-is-geithner-continuin_b_169234.html
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Same goes for GM and Chrysler. Just let the existing laws operate.
banzai7

Check out whats cooking at AIG tonite….

BAILOUT SURFIN U.S.A.
(Surfin U.S.A., the Beachboys)
WilliamBanzai7 and the Bailout Boys

Listen everyone there’s a Bailout ocean
Across the U.S.A.
Greedy bankers n idiot CEOs are surfin’
Like its gold rush Californ-i-a
You’d seem ‘em wearing their Hermes ties
Bespoke brogues too
A big French jet will do
BAILOUT U.S.A.

You’d catch ‘em bailout surfin’ at CITI
(Inside outside U.S.A.)
AIG’s bottomless line
(Inside outside U.S.A.)
Detroit City and Charlotte
(Inside outside U.S.A.)
Why won’t someone draw a line
(Inside outside U.S.A.)
All over East Side Manhattan
(Inside outside U.S.A.)
Goin down the faux capitalist way
(Inside outside)
Everybody’s gone bailout surfin’
BAILOUT U.S.A.

We’ll all be planning out a TARP get away
We’re gonna take real soon
We’re waxing down our slippery surfboards
We can’t wait for Dr Doom
We’ll all be gone for the summer
We’re on a Ponzi safari to stay
Tell the shareholders and taxpayers we’re bailout surfin’
BAILOUT U.S.A.

Everybody’s gone bailout surfin’
BAILOUT U.S.A.

Everybody’s gone bailout surfin’
BAILOUT U.S.A
Andy from MA

Just why can’t they break Citi up into stand alone smaller operating units?