Will they or won't they? Citigroup Chairman Richard Parsons told CNBC's Scott Cohn that they were in negotiations with regulators on how to proceed with the repayment of $20 billion in TARP money owed to the government; our Maria Bartiromo also said that CEO Vikram Pandit has changed his travel plans to complete the deal.
One sell-side trader I was supposed to meet for dinner told me he would be late because of a large deal that might come tonight; he declined to say what deal it was.
If they were forced to raise capital on a dollar for dollar basis to repay the $20 billion, Rochdale analyst Richard Bove figures they would need to sell about 5.5 billion shares at $3.75 (currently $3.83), which would dilute shareholders by about 20%.
But do they need to raise $20 billion IN EQUITY? That's what the negotiations with regulators are about--B of A/Merrill Lynch's bank analyst Guy Mozkowski, in a note to clients this morning, said "the issue is regulatory capital required as government withdraws."
Simply put, the government wants more capital. The hope among some traders: half in equity, half in cash, which would be less dilutive on both a per-share basis and earnings.
Remember, all this negotiation is just to pay back the Trust Preferreds. The government still owns 7.7 billion common shares, plus $7 billion in preferred stock to "ring-fence" guarantee on $200 billion of assets.
But that is an issue that will need to be resolved on another day.
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