The Treasury announced today that it will increase it’s stake in Citigroup from 8% to 36%.
So the US government is now the largest shareholder of Citigroup! That means me and you the taxpayer. This move doesn’t put more government money into Citigroup, it just transfers debt to equity. Preferred securities the government already bought will be converted into common stock in the company. This allows Citigroup to stop paying interest on the preferred shares which, in effect, gives them more capital.
As a result of the swap Citigroup will be changing up some members of it’s board to include more independent members. Interesting as the government’s role is already showing an impact.
If there was a way to know that the government could stay partial here and only do what was best then this might not be so bad. But who can say what is best? How long before this turns political? I also have to question what happens when other banks ask to swap their preferred shares for common stock? How can the US government be owners in more than one bank and isn’t it a bad idea, not just for capitalism, to have the government control so much banking?
It could be this turns out to be a good move down the line. Citigroup shares are very low and taxpayers are getting the stock relatively cheap. Should the bank recover the stock could be worth a tidy sum.
But wait…How would the government go about selling the common stock without causing more problems? Do they swap them back for preferred shares? This could be a mess.
Some more things to ponder:
- As a taxpayer, should I get free checking with Citibank? At least free ATM use? (Maybe access to a reasonable mortgage?)
- If the company re-instates it’s dividend, which it recently suspended, will I get a piece of that (that would be cool)?
- Here’s the biggie – If the Mets are playing at CitiField does that really become National Field? What happens when the Nationals visit the Mets? Do the Nationals get home field advantage as a result?
- You get the feeling we’re living out the book Atlas Shrugged (seriously, read this book!)? What’s the next industry the government buys into? Is Steve Jobs really ill or did he just disappear like characters in the book? Funny that Bill Gates stepped down recently too. Hmmm.
What do you think of all of this?
Source: NY Times
photo credit: TheTruthAbout…
{ 5 comments… read them below or add one }
This presents a very interesting question. Is buying shares in something like this going to be like buying FDIC stocks? What does everyone else think?
@ Steve – Very interesting. Or by buying Citi shares you are really buying the Treasury?
At least some better news of people that have C. C wasn’t expected such a big drop until they revealed that they weren’t as healthy as everyone thought.
LOL, some funny points in there. I’ve read Atlas Shrugged and do love it, but I’m also able to see where it goes hysterical on itself. I think US citizens shouldn’t get too anxious at these knee-jerk words and moments like “nationalization”. Many things are already nationalized in the US. And it’s clear that Geither et al. have no intention of keeping this situation in place, it’s just temporary. It’s like triage on a bleeding patient: you’re not going to keep the IV in there forever. (Sorry, medical practitioners, for that sloppy metaphor!:).
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@ MoneyEnergy – You know what you sound like? A character right out of Atlas Shrugged! “It’s only temporary until the economy gets better” they would say. Next thing you know the gov’t owns the industry and one industrialist gets all the benefits of a monopoly.
It’s true that people get heated about nationalization but I think they should. It’s a serious thing that could have long-term ramification if we aren’t careful.