17 December 2009

Treasury Cancels Plans to Sell Citi Stake After Failed Equity Offering Stings Shareholders

The shareholders of Citigroup should be furious at the greedy and reckless actions of Citi's management in diluting their shares in order to obtain a freer hand in granting themselves fat bonuses.

Tonight's equity offering failed to bring in a sufficient price, serving up a significant 20% discount to existing holders of the stock.

And the de facto largest shareholders of Citigroup, the US taxpaying public and all holders of US Federal Reserve Notes, took quite a paper loss on their holdings because of Tim and Larry's miscalculations regarding the market's willingness to swallow more large chunks of questionable debt riddled equity from the US zombie banks.

Tim decided that because of this failed offering, the Treasury will cancel its plans to unload your 33% of Citi's shares, preferring to consider the quick flip a longer term investment, as failed trades are often wont to become.

And in retrospect, Timmy's decision to convert the government's preferred stock to common stock is looking to be exceptionally.... stupid, or fishy, or all of the above.

Never fear. We are sure that the Obama Administration can reach out to the Working Group on Markets to put a bid under those shares at some future date, perhaps with help from puffed up government estimates of the vitality of the US economy as a wind at its back.

Technically, Citi can pay back the TARP money from the proceeds. Can they have the gall to do that and pay themselves bonuses this year to boot, which is the basis for this exercise in dilution in the first place? This shows the farce that the Obama financial reforms really are. Nothing has changed except that big bank losses were transferred to the public debt, and the excess of the US financial sector continues with government support.

Financial engineering to maintain an imbalanced status quo, even with the mighty Zimbabwe Ben at the helm, is always and everywhere an economic morass, a Vietnam of moral hazard, and a political tarbaby of increasingly distasteful policy decisions. All for the sake of a wealthy few, the rapacious predatory class, an economic elite that traffics in betrayal and the breaking of oaths.

Such is the tangled web we weave, when first we practice to deceive.
Gentlemen, start your presses...

U.S. delays its $5 bln Citi sale after weak pricing

By Dan Wilchins and David Lawder

NEW YORK/WASHINGTON, Dec 16 (Reuters) - The U.S. Treasury delayed a plan to sell its $5 billion of Citigroup Inc (C.N) shares after a stock offering by the bank attracted weak demand and priced at a much lower-than-expected $3.15 a share.

The bank sold $20 billion of stock and convertible bonds to repay funds it owes to the government so it can avoid the executive compensation restrictions that came with multiple U.S. bailouts.

But raising that capital came at a steep cost to shareholders, whose shares are worth 20 percent less than their closing level on Friday, before the bank announced its plan for repaying funds to the government.

"It's a terrific deal for Citigroup's managers, who can get paid more, and a terrible deal for shareholders. The company paid a huge price for this capital," said Sean Egan, principal at ratings agency Egan-Jones Ratings.

Citigroup was the third major U.S. bank to launch a multibillion-dollar share sale in December and the multitude of share sales likely dampened demand, analysts said.

"Buyers are in control of the process now," said Blake Howells, director of research at Becker Capital Management in Portland, Oregon.

The share sale price is less than the $3.25 price at which the government bought them earlier this year as part of an emergency rescue of the No. 3 U.S. bank, shrinking the paper value of the government's 7.7 billion shares to $24.2 billion. That stake was originally worth $25 billion and in October was worth nearly $40 billion.

Treasury "is not going to sell at a loss. That's the bottom line," a source familiar with the situation said.

The U.S. decided not to sell any shares at this time, and has agreed not to sell Citi shares for 90 days, the bank and the Treasury said. The government owns about one-third of Citigroup's shares.

The U.S. government still plans to sell its Citigroup shares within the next year, a Treasury spokesman said.

The government's decision not to sell shares was an about-face from Monday, when Citigroup said the government would sell up to $5 billion of shares alongside the bank's offering....