Citigroup $58 Billion Stock Swap Coming this Week

Citigroup expects to begin its much-delayed $58 billion stock swap later this week, as part of a plan that could leave the government with a 34 percent stake.

The third-largest U.S. bank said on Monday it is conducting the swap to bolster capital in the wake of about $36 billion of losses over the last six quarters.

Citigroup had planned beginning in April to swap as much as $52.5 billion of preferred stock into common stock at a conversion price of $3.25 per share.

It increased the offering's size after regulators last month told the bank to raise another $5.5 billion in light of a 'stress test' of its ability to weather a deep recession.

About $25 billion of the U.S. Treasury Department's preferred shares will be converted into common stock. New York-based Citigroup has taken $45 billion from the government's Troubled Asset Relief Program.

The swap could result in issuance of more than 17 billion new common shares, diluting existing investors by 76 percent.

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Citigroup delayed the offering after the FDIC threatened to lower a government rating on the bank, a person familiar with the matter said.

The bank believed it would have to disclose such a cut and delayed the start of the swap, but the government rating was ultimately left alone, the person said. The person was not authorized to speak and requested anonymity.

Stephen Cohen, a Citigroup spokesman, referred to a statement by the bank that press reports suggesting that federal banking agencies delayed approvals are not correct.

Citigroup shares lost about 1 percent on the New York Stock Exchange Monday.

Many investors have prepared for the swap through a hedging strategy in which they buy Citigroup's preferred shares while selling borrowed common shares short. Borrowing stock can be expensive, and the delays have increased the investors' costs.

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