February 27, 2009

The US government, throwing yet another lifeline to Citigroup, will boost its stake in the banking giant to as much as 36%, encourage private investors to help shore up the bank’s capital and radically reshape the board.

  • A d v e r t i s e m e n t
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The Treasury agreed to convert up to $25 billion in government-held preferred shares to common equity—provided private investors contribute an identical sum—in the third major aid package for Citigroup since mid-October. The move won’t involve any new government money for now, however.

The Treasury, which has provided a total of $45 billion to Citigroup, left the door open for the bank to seek additional government funding or for the conversion to common shares of the remaining $20 billion in federal bailout money it received late last year. The government currently holds about an 8 percent stake in Citi.

While the package does not immediately inject more money into Citigroup, it gives Chief Executive Vikram Pandit more time to shrink the third-largest US bank, sell unwanted assets and restore investor confidence.

It also give the government far greater influence on Citigroup’s operations, short of an outright nationalization.

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