Treasury to Match Private Conversions of Common Equity in Citigroup

In a move geared at bringing private investment back to the financial system, the U.S. Treasury has agreed to match private conversions of preferred shares of Citigroup into common equity.

Citigroup said it would offer to exchange up to $27.5 billion of preferred stock into common equity at a conversion price of $3.25 per share with the U.S. government matching the exchange, up to $25 billion.

The move is geared at attracting private capital back to the firm and may serve as a template for the U.S. Treasury's Capital Assistance Program, announced just days ago.

The move could increase the U.S. government's stake in the firm to up to 40%.

In exchange, the firm will re-shuffle its management to comprise mostly of independent directors, but CEO Vikram Pandit will keep his job. The Treasury said it will not be adding new money to Citigroup.

"This securities exchange has one goal - to increase our tangible common equity," Pandit said in a press release. "While we believe Tier 1 capital remains the most important measure of the financial strength of banks, we recognize that the markets also view Tangible Common Equity as an important measure."

The U.S. Treasury also pointed out that the move would not require additional taxpayer investments into the firm.

At 7:05 a.m. EST, shares of Citigroup were up 2.44% in pre-market trading.

By Erik Kevin Franco and edited by Stephen Huebl
©CEP News Ltd. 2009