The US government is in talks that could lead to it taking a 25 percent to 40 percent stake in Citigroup, the Wall Street Journal (WSJ) reported on Sunday.
“While the discussions could fall apart, the government could wind up holding as much as 40 percent of Citigroup’s common stock. Bank executives hope the stake will be closer to 25 percent,” the paper reported, citing unnamed people familiar with the situation.
“The proposal was made by Citigroup to its regulators. The [Barack] Obama administration hasn’t indicated if it supports the plan,” the report said, citing people with knowledge of the talks.
Under the plan under consideration, a substantial portion of the US$45 billion in preferred shares held by the US government would be converted into common stock, the WSJ said.
The government obtained a 7.8 percent stake in the bank in return for pumping capital into Citigroup.
In October, the US Treasury poured US$125 billion into eight financial giants, including US$25 billion for Citigroup, in exchange for preferred shares and warrants.
In November, the government agreed to pump another US$20 billion into Citigroup as its stock tumbled. It then agreed to protect the banking company against most losses on a US$301 billion pool of assets.
The stock conversion wouldn’t cost the US treasury additional money, but other Citigroup shareholders would see their shares diluted, the report said.
Citigroup chief executive Vikram Pandit huddled on Sunday with his senior executives to fine-tune his pitch to the Obama administration, the WSJ said.
The paper said the talks reflect a growing fear that Citigroup and other big US banks could be overwhelmed by losses amid the recession and housing crisis.
Last week, Citigroup’s share price fell below US$2 to an 18-year low, and bank executives increasingly believe that the government needs to take a larger ownership stake in the institution to stop the slide, the report said. If a deal is reached, it would be the US government’s third bid to help Citigroup in several months.
On Friday, the Obama administration moved to quash rumors that troubled US banks would be nationalized.
“This administration continues to strongly believe that a privately held banking system is the correct way to go,” White House spokesman Robert Gibbs told reporters amid speculations that Bank of America and Citigroup are among banks facing imminent nationalization.