Wednesday, February 25, 2009

GIC Citigroup stake

The US govt is in talks with Citigroup to convert its preference shares to common taking a 40% stake in the company. This move is expected to shore up confidence of existing shareholders because it will deter the US govt from doing something that wipes out common shareholders as it will also wipe itself out in the process. The problem with GIC converting to common is it will lose 93% of what it invested and the dividends of 7% on the preference shares.

Many analysts believe that Citigroup is insolvent and will need more cash infusions from the US govt that will further dilute existing shareholders and may lead to nationalisation. What the US govt is trying to do is trying to get private money into the rescue so that it doesn't end up with a majority stake. To do this they have to guarantee the value of the bad assets (see the Jim Jubak article on the Geithner plan I posted earlier) instead of going back to Congress for more money.
Whatever it is, it is unlikely Citibank stocks will every climb back up to the price our GIC purchased. The stock is now a playground for the day traders - the gamblers who like the volatility and risk as the stock gyrates on the uncertainty of the company's future. Citigroup's capitalisation is now below DBS! It is a global giant with a big hole in its balance sheet that needs to be filled and this hole is getting bigger and bigger as the recession deepens.
-------------------
(SINGAPORE) The Government of Singapore Investment Corp (GIC) will say no to converting its preferred Citi shares into common stock now, a news report said yesterday. The Wall Street Journal (WSJ) reported that GIC wants to keep its US$6.88 billion investment in the US bank, but could face a dilemma if Citi reaches an agreement with US officials that includes a greater government role. This came as Citigroup is in talks with the US government to convert the latter's preferred shares into common stock as a means of shoring up investor confidence. 'We are open to considering a request to do so,' a US Treasury spokesman said. On Monday, the Federal Reserve and US Treasury issued a joint statement, pledging their 'determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments'. The statement said the US Treasury would begin applying its new 'stress test' to major banks today and that banks found lacking in capital would be encouraged to seek private investors. If those banks cannot attract investments from the private sector, the government would step in with a 'temporary capital buffer'. The statement said that any government capital will be in the form of mandatory convertible preferred shares, 'which would be converted into common equity shares only as needed over time to keep banks in a well-capitalised position'. Citi is said to be persuading some investors holding preferred shares to convert some of those stakes into common stock. These investors include GIC, Abu Dhabi Investment Authority and Kuwait Investment Authority. When contacted, a GIC spokeswoman declined to comment. However, the rationale for GIC's refusal to convert is clear - it could suffer losses of as much as 93 per cent. Called 'perpetual convertibles', GIC's preferred shares represent a beneficial stake of 5.3 per cent if converted, and it also offers an annual coupon of 7 per cent. But a conversion into common equity will cut off that income stream. Based on the terms of the initial purchase, GIC must convert at a 20 per cent premium above a reference price, which was set based on the average Citi share price in the days following the initial announcement on Jan 15, 2008. Between Jan 16 and Jan 30, 2008, Citi's share price hovered between US$24 and US$27, giving an average of about US$26. Assuming a face value of US$6.88 billion and a reference price of US$26, a conversion will yield a shareholding of about 220.5 million shares (for which GIC must pay just over US$31 a share). At Citi's US$2.14 closing price on Monday, the stake is worth US$471.9 million. 'If GIC is to convert into common stock, the deal must be sweetened quite a lot. They want to make sure that their return will be equal or above the coupon,' WSJ quoted a source as saying. According to analysts, Citi's reason for persuading some investors to convert to common stock is to stop the US government from gaining a majority stake in the bank. But matters are not that simple. Speaking to BT, CIMB economist Song Seng Wun said that if GIC converts its preferred shares into common stock, alongside the US government, this will lead to an enormous dilution of the sovereign fund's stake. 'On the other hand, this may be the only option. If GIC does not convert, and the situation worsens, even the 7 per cent annual coupon may vanish as well,' Mr Song said. Plus, there is also the spectre of a possible nationalisation of the US bank. Given that GIC's preferred shares may be classified under equity, a full nationalisation of Citi could see its entire stake wiped out. The US authorities and Citi have their own issues to deal with. According to reports, the new stress test is likely to measure tangible common equity (TCE) ratios - what shareholders would get back if the company were to be wound up. And Citi is likely to fail the test as its 1.5 per cent TCE ratio is already below the 3 per cent seen as safe. Meanwhile, the Financial Times quoted Jason Goldberg, a Barclays Capital analyst, as saying that the US government would have to convert US$15 billion of the US$45 billion in Citi preferred shares it holds to keep its stake at about 40 per cent. 'However, if, as Citi is pushing for, other holders of preferred shares such as sovereign wealth funds and institutional investors were also to convert their US$30 billion worth of securities, the government could convert more than US$30 billion without gaining a majority stake.'

43 comments:

Anonymous said...

Read this:

Citizens group seeks return of taxpayers' money Tokyo gov't invested in troubled bank

http://mdn.mainichi.jp/mdnnews/news/20090224p2a00m0na015000c.html

This will never happen in Singapore...

Anonymous said...

And Jesus said unto them, "And whom do you say that I am?"

They replied, "You are the eschatological manifestation of the ground of our being, the ontological foundation of the context of our very selfhood revealed."

And Jesus replied, "What?"

Anonymous said...

"Grace" is getting what we don't deserve.
"Mercy " is not getting what we did not deserve.
God offers both "Grace" and "Mercy" to all sinners except for what the Bible called the unpardonable sin
To the one who blasphemy in this Blog, you have committed excactly that when you change God's word and twist it with what you think is funny...please stop.

taxi driver said...

Whatever, S'pore is fucked big time!

Anonymous said...

I suspect the joker who post religious jokes here is a minister without portfolio who has been entertaining his members in the labour movement for the past few months.

Anonymous said...

mm was an advisor to citibank right?

i wonder how his appointment had influenced GIC in making the decision to sink billions in the bank?

Ghost said...

Reports say that GIC is saying no to Citi. I fully support this decision.

Anonymous said...

The worst for GIC is to just simply write off lah. Although you may be shocked by the losses, you will be even more shocked by how much more they still have left. So much that it is a secret.
That's why they tell you the reserves won't be depleted by the losses. They know something that you folks don't.

There is a Chinese saying: If the emperor is not worried, why should the eunuch worry?

"Huang shan bu zi tai jian zi"

Anonymous said...

"Huang shan bu zi tai jian zi"

Simple idiom, President Kim Jong-il, paid Millions for a Top Italian Chef and imports deli from Japan when his citizens are dying of starvation.

Where in this material world would a family drawing more than $20 million per year of taxpayers money be worried.

Not 1 Singapore's minister is worried, its those pitiful old folks who are dependent on social welfare that are worried.

We should not accept PAP endless lies that we have plenty of national reserves, what is so difficult to just reveal the net amount of national reserves Singapore has?

If we believed Lee Kuan Yew its blind faith. Are we going to drag him to the Padang and have him shot if one day, our money cannot buy a KG of rice. Wouldn't it be too late?

Onlooker said...

It's the Yankees Money politic.

This is a "Whose the coward"/ "dare" Game being played by Republican and Democrat in America.
The UltraRich American (mainly Republicans) cannot allow this (nationalization of bank) to happen.So any SWF(including the arab one) who convert now will end up being fodder for the UltraRich Americans.
Basically their garment is asking the UltraRich Yankees to pay for their part in ruining the economy via mass speculations.

Anonymous said...

Won't be depleted because they still have their hands in our pockets?

Your money is my money, my money is not your money.. get it voters?

You get who you vote for.

Anonymous said...

If you go yawningbread, the gay site, u will find more GOD insulting words. They insulted Jesus, GOD and anything christian. Very disturbed by such acts, thinking whether to report to the police.


God Fearing Netizen

Anonymous said...

xanax without a perscription pass drug test xanax your system - 20 mg xanax side effects

Anonymous said...

buy generic ativan ativan side effects neonates - ativan withdrawal chills

Anonymous said...

order ambien generic ambien overnight delivery - 20 mg generic ambien

Anonymous said...

cheap xanax 1mg xanax bluelight - xanax dosage insomnia

Anonymous said...

buy valium valium depression side effect - valium diazepam 2mg

Anonymous said...

buy diazepam diazepam valium nursing responsibilities - diazepam basic drug

Anonymous said...

buy valium online buy valium online us - valium urine drug test

Anonymous said...

diazepam 10 mg buy diazepam online no prescription needed - does 10mg diazepam look like

Anonymous said...

ativan online ativan ld50 - ativan 7 mg

Anonymous said...

order ativan lorazepam 1mg genus - buy ativan online overnight

Anonymous said...

buy soma generic soma special order services - carisoprodol 350 mg street price

Anonymous said...

soma online soma special order services - buy soma online legal

Anonymous said...

buy generic ambien online ambien medication used - ambien side effects anxiety

Anonymous said...

buy valium online 5mg valium withdrawal - buy valium no prescription needed

Anonymous said...

order soma buy soma online no prescription cheap - buy soma online canada

Anonymous said...

buy valium online grapefruit drug interactions valium - types generic valium

Anonymous said...

buy valium online valium or diazepam - buy valium bangkok

Anonymous said...

Blogger: Diary of A Singaporean Mind - Post a Comment generic ativan online - purchase lorazepam http://www.ativanonlineoffer.com/#purchase-lorazepam

Anonymous said...

Blogger: Diary of A Singaporean Mind - Post a Comment acomplia price - acomplia weight loss http://www.a6soft.com/#acomplia-weight-loss

Anonymous said...

Blogger: Diary of A Singaporean Mind - Post a Comment prednisone cost - prednisone drug http://www.ourdailybreadmarket.net/#prednisone-drug

Anonymous said...

Blogger: Diary of A Singaporean Mind - Post a Comment buy meridia online - buy sibutramine online http://www.meridiaordernow.com/#buy-sibutramine-online

Anonymous said...

Blogger: Diary of A Singaporean Mind - Post a Comment purchase acomplia - acomplia online no prescription http://www.a6soft.com/#acomplia-online-no-prescription

Anonymous said...

Blogger: Diary of A Singaporean Mind - Post a Comment ativan online - buy ativan online http://www.ativanonlineoffer.com/#buy-ativan-online

Anonymous said...

Blogger: Diary of A Singaporean Mind - Post a Comment ventolin online no prescription - buy ventolin online no prescription http://www.ventolinforsaleonline.com/#buy-ventolin-online-no-prescription

Anonymous said...

Blogger: Diary of A Singaporean Mind - Post a Comment buy acomplia online - buy acomplia http://www.a6soft.com/#buy-acomplia

Anonymous said...

Blogger: Diary of A Singaporean Mind - Post a Comment soma online pharmacy - soma pills http://www.emprendiendoideas.com/#soma-pills

Anonymous said...

Blogger: Diary of A Singaporean Mind - Post a Comment order ventolin online - buy ventolin no prescription http://www.ventolinforsaleonline.com/#buy-ventolin-no-prescription

Anonymous said...

Blogger: Diary of A Singaporean Mind - Post a Comment purchase ventolin online - ventolin online pharmacy http://www.ventolinforsaleonline.com/#ventolin-online-pharmacy

Anonymous said...

Hi, MoxoredapeTox buy effexor online - buy venlafaxine http://www.effexorcostonline.com/#buy-venlafaxine

Anonymous said...

Hi, MoxoredapeTox propecia price - cheap propecia http://www.bigdocpoker.com/#order-propecia

Anonymous said...

Hello, generic accutane online - buy generic accutane http://www.josoclasolucio.com/#buy-generic-accutane