"Citigroup May Cut Conversion Ratio, Analyst Says (Update2)
By Edgar Ortega
April 14 (Bloomberg) -- Citigroup Inc. is more likely to cut the conversion ratio for its preferred shares now that the common stock is trading above $3.25, according to a Bank of America Corp. analyst.
Citigroup announced plans in February to exchange up to $52.5 billion in preferred shares for common stock to replenish capital. Shares of the New York-based bank closed above the planned conversion price of $3.25 yesterday for the first time since the transaction was announced on Feb. 27.
“The risk of the preferred exchange offer being repriced lower (that is, lower conversion ratios than previously indicated) has increased, in our view,” Tatyana Hube wrote in a report today.
Jon Diat, a Citigroup spokesman, declined to comment on the report. The bank hasn’t set a date for the conversion.
Citigroup rose 12 cents, or 3.1 percent, to $3.92 at 2:11 p.m. in composite trading on the New York Stock Exchange. The shares have more than doubled since Feb. 27, when the U.S. government ratcheted up its effort to save Citigroup by agreeing to convert as much as $25 billion of preferred shares into common stock. Another $27.5 billion in preferred shares held by private investors may also be exchanged.
Citigroup preferred stock may be converted at a price closer to its full liquidation value rather than the current exchange factor of 85 percent or 95 percent, Hube said in the note. The shares currently trade for 68 percent to 78 percent of par value, the analyst wrote.
“Even if the preferred exchange values are capped at their par values, there is potentially still a lot left to gain,” Hube said.