Financials

Citigroup to Sell $3 Billion in Stock; Shares Fall

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Citigroup said Tuesday it plans to sell $3 billion of common stock to bolster its capital levels, and its shares declined in after-hours trading.

Citigroup
Mark Lennihan

Chief Financial Officer Gary Crittenden said in a statement that Citigroup had received "strong" interest in the public offering. The company said the issue may grow in size.

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 in the video at bottom.)

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." Crittenden, on a conference call on Citigroup's earnings, was asked if the bank might seek more capital.  He said, "You can never say never.''

Today the company indicated it was "issuing common equity at this time as we continue to optimize our capital structure."

Since late 2007, Citigroup has raised more than $36 billion in capital after write-downs and losses mounted from subprime mortgages, loans to fund corporate buyouts, and other debt.

The New York-based bank lost about $15 billion in the six months ending March 31. The offering comes barely a week after Citigroup sold $6 billion of preferred stock.

"It's smart," said William Smith, chief executive of Smith Asset Management in New York, which owns Citigroup shares. "Obviously it's dilutive, but it's smarter than going out and having to pay a high premium for a preferred issuance."

"What's amazing is, as horrible as this sector is, however much everybody beats it down all the time, there seems to be an endless stream of people who are more than willing to throw money at these guys," Smith added.

Shares of Citigroup, a Dow Jones industrial average component, were down about 3 percent in after-hours electronic trading. They had fallen 49 cents during regular trading.

The offering follows a 46 percent run-up in Citigroup's stock price since it bottomed on March 17 at $18.00 per share, its lowest level since October 1998.

The bank's market value is about $138 billion, based on the closing price and reported shares outstanding as of March 31.

Citigroup said its Tier-1 capital ratio as of March 31 would have been 8.5 percent on a pro forma basis, after adjusting for the common and preferred stock offerings. The bank on April 18 reported a 7.7 percent Tier-1 ratio. The ratio measures a bank's ability to cover losses. (See March 5 video on Citigroup's capitalization at left.)

Regulators say 6 percent implies a "well-capitalized" bank.

Citigroup's own investment bankers are arranging the latest stock offering.