Citigroup Boosts Common Stock Sale to $4.5 Billion
Citigroup said it sold $4.5 billion of common stock, 50 percent more than originally expected, bolstering the largest U.S. bank's balance sheet after billions of dollars of subprime mortgage write-downs and other credit charges.
The bank's stock fell 83 cents or 3.2 percent, to $25.49 in morning trading, following the sale of 178.1 million shares at $25.27 each, or 4 percent below the Tuesday closing price.
The offering dilutes holdings of existing shareholders.
Citigroup said it may boost the offering to $4.95 billion to meet demand.
Word of the offering comes only about a month after Chief Executive Vikram S. Pandit said in an internal bank memo acquired by CNBC that Citigroup is "financially sound" and "well-capitalized."
(See the original CNBC report -- click the video below.)
Citi said on its April 18 earnings call "that we have been proactive and we intend to continue to manage our capital such that we have a strong balance sheet." Chief Financial Officer Gary Crittenden, on a conference call on Citigroup's earnings, was asked then if the bank might seek more capital. He said, "You can never say never."
Crittenden said Wednesday that the bank increased the offering from $3 billion "in response to strong demand from a broad base of investors." Since late last year, Citigroup has raised more than $40 billion of capital, including $10.5 billion over the last week-and-a-half.
The bank has suffered more than $46 billion of credit losses and write-downs since the end of June, and lost close to $15 billion in the last two quarters.
Meredith Whitney, an Oppenheimer & Co analyst who last October correctly foresaw Citigroup's capital needs, said the bank still needs to raise $10 billion to $15 billion more, or shed several hundred billion dollars of assets.
"The fact that the company raised such a small amount of capital at this time confounds us," Whitney wrote on Tuesday evening, after Citigroup set plans to raise $3 billion.
Whitney said Citigroup may need to cut its dividend again, following January's 41 percent reduction.
Even with January's cut, Citigroup's annual dividend payout would exceed $6.5 billion.
The stock sale appears to suggest a shift in thinking within Citigroup management.
Citigroup shares , which were down more than 2.5 percent Wednesday, rose 46 percent between mid-March and Tuesday's close, which likely encouraged management to sell stock now, analysts said.
Finding a Bottom
New York-based Citigroup is one of many banks, including Bank of America and Wachovia,
"Most of these banks keep saying they don't need more capital and then they raise more," said Walter Todd, a portfolio manager at Greenwood Capital Associates in Greenwood, South Carolina, which does not own Citigroup shares. "Ending capital raises will help these stocks find a bottom."
Citigroup's market value was about $138 billion on Tuesday.
Sandler O'Neill & Partners analyst Jeff Harte estimated the latest offering will dilute earnings by about 2 percent per share, taking into account the possible resetting of terms on existing convertible securities.
Following the sale, Citigroup has a "Tier-1" capital ratio, a measure of capital strength, of about 8.6 percent, up from 7.7 percent reported on April 18.
Regulators say 6 percent implies a "well-capitalized" bank.
--Reuters contributed to this report.