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Citi up on expanded US stake talk Citi up on expanded US stake talk
(20 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 rose 17% in early trading before falling back to trade up 9%, after reports the US government may take a bigger stake in the 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. The government has said it preferred banks to remain in private hands.
A joint statement from the Treasury, the Federal Reserve and other regulators concluded: "The strong presumption of the Capital Assistance Programme is that banks should remain in private hands."
The statement also reiterated that, "the US government stands firmly behind the banking system" and added that regulators would ensure banks have capital and the liquidity to provide the credit needed to restore economic growth.
The Capital Assistance Programme is the scheme that allows banks to borrow money from the government if they need more capital.
Citigroup has declined 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 dilutedHoldings 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".
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.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.