BY KEVIN KINGSBURY AND MAYA JACKSON RANDALL - Struggling banking giant Citigroup Inc., moving aggressively to shore up its equity base, announced a stock swap Friday that if successful will leave the government owning more than a third of the company and wipe out nearly three-quarters of existing shareholders’ stake.
The move is an acknowledgment that more than $50 billion in government capital and a backstop on more than $300 billion in troubled Citigroup assets haven’t been enough to stop the bank’s slide. It also represents a deepening of the government’s role in trying to prop up the U.S. banking sector.
Under the deal, Citigroup said it will offer to convert nearly $27.5 billion in preferred stock sold to private investors and the public and up to $25 billion in preferred stock bought by the government into common stock. The exchange, if fully executed, would leave the U.S. government with 36% of the bank’s shares. Existing shareholders’ stake would be cut to 26%. Shareholders will have to approve much of the common stock issuance.
Additionally, the government is demanding that the company overhaul its board of directors. Citigroup’s board will soon include a majority of new independent directors, the company said Friday. Chief Executive Vikram Pandit is expected to keep his job under the agreement.
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