Citi announced today that it will expand its previously disclosed public exchange offers by $5.5 billion. This increase reflects the results of the U.S. government's Supervisory Capital Assessment Program (SCAP).
"The government's stress test was a rigorous process that assessed our capital and confirms our view that Citi's plans and actions will give it the financial strength to weather an adverse stress scenario" said Vikram Pandit, chief executive officer of Citi. "The results also reflect 15 months of continuous work, tough decisions, and steady execution towards a strong and stable Citi with a clear strategy for the future."
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Citi will expand its public exchange offers previously announced on Feb. 27, 2009, by increasing the maximum amount of preferred securities and trust preferred securities that it will accept in exchange for common stock from $27.5 billion to $33 billion to further increase Tier 1 Common without any additional U.S. government investment or conversion of U.S. government securities into common shares. The conversion price of $3.25, the exchange factors and the priority of trust preferred securities accepted in the exchange offers will remain unchanged from the transaction terms as previously announced. (See attached transaction summary)
Consistent with the previous announcement, the U.S. government will continue to match the exchanges by public and private holders up to a maximum of $25 billion face value of its preferred stock at the same conversion price. The U.S. government will also continue to exchange the portion of its existing preferred securities that are not exchanged for common shares into new trust preferred securities with an annual coupon of 8%.
Citi said that it expects to launch the public exchange offers shortly after further SEC review of our S-4 and finalization of definitive agreements with the U.S. government reflecting the transaction terms previously agreed with the U.S. government.
This transaction could increase Tier 1 Common of the company from the first-quarter level of $22.1 billion to as much as $86.2 billion, which assumes the exchange of $33 billion of preferred securities and trust preferred securities, the maximum eligible under this transaction. Citi's TCE which was $30.9 billion on Mar. 31, 2009, will increase by as much as $60.4 billion to up to $91.3 billion.
Based on the maximum eligible conversion, the U.S. government would own approximately 34% of Citi's outstanding common stock, and existing shareholders would own approximately 24% of the outstanding common shares.
