Citigroup gets a third bailout from the US

Bloomberg

The plan will involve the Treasury Department converting as much as $25 billion of preferred shares into common stock, the Treasury Department said in a statement Friday. The government said it will make the swaps only if private holders agree to the same terms. The U.S. doesn’t immediately intend to inject additional money after channeling $45 billion to the company last year.

"This gradual step-by-step process doesn’t work, or has not worked so far," said Marino Valensise, chief investment officer of London-based Baring Asset Management, who helps oversee about $30 billion for clients.

Citigroup Chief Executive Officer Vikram Pandit is trying to bolster confidence after his bank’s stock sank to $1.95 last week - the lowest price in 18 years. The government is supporting the company, which had 200 million customer accounts in more than 100 countries at the end of last year, because of concern its failure might roil already weak global markets.

Federal Reserve Chairman Ben S. Bernanke said Feb. 25 he wants to avoid nationalizing Citigroup and other large banks in a way that would wipe out shareholders and leave the U.S. in full control. Bernanke said the government might end up owning a "substantial minority" of the bank.

The Treasury Department is injecting a fresh round of bailout funds into the nation’s banks to help them weather the recession. Regulators on Feb. 25 announced details of "stress tests" to determine how much capital banks will need should unemployment climb to 10.3 percent in 2010.

Pandit, 52, has been selling units to free up capital after Citigroup posted a record $27.7 billion loss in 2008. He said last month he planned to sell the bank’s CitiFinancial consumer-finance and Primerica life-insurance subsidiaries as soon as the market permits. As part of Friday’s deal, Citigroup also agreed to reconstitute its board so that a majority of the directors are new and independent, the Treasury said.