In its latest attempt to quell the nation’s economic nerves, the Treasury Department announced this morning that it will increase its stake in Citigroup, news that caused the beleaguered bank’s share price to drop during premarket trading.
We can, of course, expect plenty of squawking about the horrors of nationalism in no time.
The move is designed to shore up the bank’s capital and, hopefully, spur it to lend more to people who need it. It will also protect shareholders. CNN Money stresses that the bank will not be getting any more tax dollars in the deal.
"Treasury is willing to participate in this arrangement to the extent Citigroup is able to reach agreement with its other preferred holders," the department said. "This transaction does not increase the amount of Treasury’s investment in Citigroup."
Exactly how big a chunk of the bank the government will own isn’t clear, but it could be up to 36 percent. Citibank has already received $45 billion in bailout money. But Treasury is promising to convert its security to match, dollar for dollar, the private preferred shares that are converted into common stock — up to $25 billion. The bank could convert as much as $27.5 billion.
The money isn’t coming without strings attached. The government wants Citigroup to get its boardroom in order in exchange for the help. Though CEO Vikram Pandit and Chairman Richard Parsons will stay put, the government has asked Citigroup to find new independent directors for its board.
All the logistics aren’t yet ironed out, but one thing’s for sure: This move will lead to even more debate about the pros and cons of nationalizing banks. In fact, one CNBC reporter just referred to the action as "creeping nationalization." Do you agree, reader?
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