Citi shares have recovered somewhat to trade at $6 a share after trading near $3 last week, after the company reached an agreement with the U.S. Treasury, the Federal Reserve Board and the Federal Deposit Insurance Corp. (FDIC) on a series of steps to strengthen its capital ratios, reduce risk and increase liquidity.
“This weekend, the U.S. government and Citi worked together in an unprecedented way to address market confidence and the recent decline in Citi’s stock price,” says Vikram S. Pandit, Chief Executive Officer. “We reached an agreement based on an innovative market solution to further strengthen our capital ratios, reduce risk, and increase liquidity. We appreciate the tremendous effort by the government to assure market stability.
The steps include the following:
- The U.S. Treasury will invest $20 billion in Citi preferred stock under the Troubled Asset Relief Program (TARP).
- Citi will issue an incremental $7 billion in preferred stock to the U.S. Treasury and the FDIC as payment for a government guarantee on $306 billion of securities, loans, and commitments backed by residential and commercial real estate and other assets.
- As a result of the asset guarantee, the $306 billion portfolio will have a new risk weighting of 20%, thus freeing up an additional $16 billion of capital to the company.
- Citi will issue warrants to the U.S. Treasury and the FDIC for approximately 254 million shares of the company’s common stock at a strike price of $10.61.
- Citi also has agreed not to pay a quarterly common stock dividend exceeding $0.01 (one cent) per share for three years effective on the next quarterly common stock dividend payment.