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Citi up on expanded US stake talk | Citi up on expanded US stake talk |
(40 minutes later) | |
Shares in Citigroup have risen by more than 17% in early New York trade, after reports the US government may take a bigger stake in the struggling bank. | Shares in Citigroup have risen by more than 17% in early New York trade, after reports the US government may take a bigger stake in the struggling bank. |
Taxpayers could be on the verge of owning as much as 40% of the lender's common stock, the Wall Street Journal (WSJ) reported. | Taxpayers could be on the verge of owning as much as 40% of the lender's common stock, the Wall Street Journal (WSJ) reported. |
The bank made an $8.29bn (£5.6bn) loss in the final three months of 2008 and was forced to split into two new firms. | The bank made an $8.29bn (£5.6bn) loss in the final three months of 2008 and was forced to split into two new firms. |
Citigroup has refused to comment on any potential plans. | Citigroup has refused to comment on any potential plans. |
"We continue to focus and make progress on reducing the assets on our balance sheet, reducing expenses and streamlining our business for future profitable growth," it said in a statement. | "We continue to focus and make progress on reducing the assets on our balance sheet, reducing expenses and streamlining our business for future profitable growth," it said in a statement. |
Last week, Citigroup's share price fell below $2 to an 18-year low. | Last week, Citigroup's share price fell below $2 to an 18-year low. |
Holdings diluted | Holdings diluted |
In November, the US Treasury announced a $45bn rescue plan for the bank, accompanied by a $306bn guarantee for Citi's most risky loans, as part of its Troubled Asset Relief Program (TARP). | In November, the US Treasury announced a $45bn rescue plan for the bank, accompanied by a $306bn guarantee for Citi's most risky loans, as part of its Troubled Asset Relief Program (TARP). |
The WSJ said Citi was now discussing with US officials a scenario whereby a large part of that $45bn, which is currently held in preferred shares by the government, would be converted into common shares. | The WSJ said Citi was now discussing with US officials a scenario whereby a large part of that $45bn, which is currently held in preferred shares by the government, would be converted into common shares. |
At present the preferred shares represent a 7.8% holding in the company. | At present the preferred shares represent a 7.8% holding in the company. |
If the move goes ahead other Citi shareholders would see their stakes diluted and the government would have much larger influence over the bank. | If the move goes ahead other Citi shareholders would see their stakes diluted and the government would have much larger influence over the bank. |
The Obama administration has not indicated whether it supports such a plan. | The Obama administration has not indicated whether it supports such a plan. |
US regulators, including the Treasury Department and the Federal Reserve, said in a statement before Wall Street opened that "the US government stands firmly behind the banking system". | US regulators, including the Treasury Department and the Federal Reserve, said in a statement before Wall Street opened that "the US government stands firmly behind the banking system". |
They added that they would ensure banks have capital and the liquidity to provide credit needed to restore economic growth. | They added that they would ensure banks have capital and the liquidity to provide credit needed to restore economic growth. |
'Hard sell' | 'Hard sell' |
David Trone, an analyst at Fox-Pitt Kelton warned that a greater government stake could mean the government harmfully meddling in Citi's operations and strategy, and many potential customers and employees would avoid Citi. | |
"If we're right, the government will have a hard time ever selling its stake back to the public markets," he said. | "If we're right, the government will have a hard time ever selling its stake back to the public markets," he said. |
Citigroup, which two years ago was worth $273bn and is now worth just £20bn, was brought to its knees by five quarterly losses in a row. | Citigroup, which two years ago was worth $273bn and is now worth just £20bn, was brought to its knees by five quarterly losses in a row. |
It has been battered by the meltdown in sub-prime mortgages - made to people on low incomes or poor credit ratings. | It has been battered by the meltdown in sub-prime mortgages - made to people on low incomes or poor credit ratings. |
A cost-cutting exercise last year resulted in some 52,000 jobs being slashed, bringing the Citi workforce down to about 323,000 people. | A cost-cutting exercise last year resulted in some 52,000 jobs being slashed, bringing the Citi workforce down to about 323,000 people. |