Citigroup Exchange Offer Update (Bloomberg)

Citigroup Inc. Announces Public Share Exchange Launch, Finalizes Definitive Agreement With U.S. Government
8:00am EDT
Citigroup Inc. announced that it has finalized a definitive agreement with the U.S. Government and will now launch its exchange offers for publicly held convertible and non convertible preferred and trust preferred securities. Under the agreement, the Government will exchange a portion of its preferred securities with an aggregate liquidation value of up to $25 billion for interim securities and warrants and its remaining preferred securities for trust preferred securities. The public exchange offers are currently scheduled to expire on July 24, 2009, subject to extension by Citi. Assuming full participation of holders of convertible and non convertible public preferred and trust preferred securities in the exchange offers, Citi will convert into common shares approximately $58 billion in aggregate liquidation value of preferred stock and trust preferred securities.

Citi Press Release http://www.citigroup.com/citi/press/2009/090610a.htm

A Good Time to Hold Bonds (NY Times)

April 6, 2009
Breakingviews.com
Good Time to Be a Bondholder

Bank bondholders around the world can probably breathe a sigh of relief. Ever since Lehman Brothers went bankrupt, leaving bondholders with losses estimated at north of $100 billion, they have lived in fear of another wipeout.

For example, Citigroup’s subordinated debt issues — whose claims would rank below those of more senior lenders in a bankruptcy — trade as low as about two-thirds of face value. But further pain is unlikely because the Group of 20 leaders seem determined to bail out bondholders if needed.

The G-20 hasn’t spelled this out. But it’s implied in a paper drawn up by the finance ministers. The authorities fear the effects of more bank debt defaults. In particular, they worry that such defaults could undermine the solvency of insurerss, which are big owners of subordinated bank debt.

The G-20 finance ministers last month said shareholders should be allowed to suffer when banks are bailed out. But they pointedly omitted any reference to bondholders.

Theoretically, the G-20 could still impose pain on bondholders. But several government officials said there was no appetite for this after the damage from Lehman, and to a lesser extent, the failures at Washington Mutual and Bradford & Bingley of Britain.

But doesn’t this make a joke of the whole bank capital regime? For years, banks have been issuing subordinated bonds and bond-stock hybrids with the idea that such instruments can, to varying extents, count as part of their capital cushions. If governments aren’t going to let bondholders suffer any losses in a crisis, then subordinated debt at least shouldn’t go toward risk capital.

The authorities do understand that banks can’t be allowed to have it both ways. That’s why subordinated debt is unlikely to count as capital in the future.

Again, the G-20 hasn’t quite said this. But the small print of the group’s communiqué last week did say that the “quality of capital should be enhanced.” One of the officials said it’s likely that only common and preferred shares would make the grade.

So subordinated debt most likely won’t be so useful for banks. But bondholders can probably count themselves lucky.

HUGO DIXON and JOHN FOLEY

For more independent financial commentary and analysis, visit www.breakingviews.com.

Citi Preferreds-government suspends some dividends - Reuters

Citi dividend decision may roil bank funding
Tue Mar 3, 2009 3:46pm GMT
By Karen Brettell - Analysis

NEW YORK (Reuters) - Citigroup's decision to halt dividend payments on some of its preferred shares may be the final blow for certain bank preferred stocks and may further dry up the willingness of private investors to buy other bank securities.

The government on Friday boosted its equity stake in Citigroup to as much as 36 percent and the bank said it will suspend dividends on some preferred and common stock and convert up to $25 billion in preferred shares to common stock as part of the agreement.

"While the dividend suspension was largely priced into current spreads, the announcement is a watershed event," and will likely dry up the ability to sell similar securities in the primary market, said Ricardo Kleinbaum, trading sector specialist at BNP Paribas in New York.

Investors will be concerned that the government may intervene in other banks, such as Bank of America (BAC.N: Quote, Profile, Research) and Wells Fargo & Co (WFC.N: Quote, Profile, Research), which have borrowed from the Troubled Asset Relief Program, and this will have a similarly negative impact on these types of preferred shares, he said.

Citigroup's dividend suspension affected its traditional preferred shares, but the bank will continue to pay dividends on its trust preferred shares, which rose on the announcement.

Credit ratings on the negatively affected Citigroup preferred securities were slashed to levels only slightly above default by all three major rating agencies on Friday.

"We believe there is a risk that Citi's future access to the capital markets could be impaired by this action," Standard & Poor's said in a statement.

"More broadly, we are also concerned that Citi's action could mark a tipping point for the financial institutions sector, and serve as a visible precedent for other companies considering a similar course of action," the rating agency added.

The intervention may also set a precedent for international banks to follow, said BNP's Kleinbaum.

"The Citi action opens the door for governments to look to preferred investors to sacrifice dividends in order to share losses," he said. "Thus, it would seem that institutions with higher government ownership are more vulnerable."

When Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research) were nationalized last year their preferred shares lost almost all of their value.

Moody's Investors Service and Fitch Ratings also both cut American International Group's (AIG.N: Quote, Profile, Research) trust preferred shares and subordinated debt into junk territory on Monday.

AIG was given access to up to $30 billion of capital in a new government bailout on Monday, at the same time as the insurer posted a record $61.7 billion quarterly loss.

Bank subordinated debt has also come under pressure as investors worry that payments on the bonds, which sit above a company's preferred shares but below its senior debt, may also be halted if bank liquidity woes persist.

The potential for the government to make loans to a company that is more senior to its other existing debt is also weighing on investors minds.

"The concern right now on banks is capital structure related," said John Atkins, credit analyst at IDEAglobal in New York. "I think everybody is worried about getting bumped down the food chain in a recovery event."

As investors take fresh losses to bank securities, financial companies are increasingly at the mercy of government programs for their funding.

Banks are able to sell bonds guaranteed by the Federal Deposit Insurance Corp (FDIC) as part of the Temporary Liquidity Guarantee Program (TLGP).

"The only way banks can continue to roll debt maturities is through the FDIC program," Atkins said.

(Editing by Kenneth Barry)


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Citi Preferreds Exchange Terms (marketwatch)

Citi gives public preferred 5%-15% conversion haircut

By Marshall Eckblad
Last update: 7:52 a.m. EST March 3, 2009(This article was originally published Monday.)
NEW YORK (MarketWatch) -- Owners of publicly traded preferred stock in Citigroup Inc. will take a haircut of 5% to 15% when they exchange their shares into common stock of Citigroup at $3.25 per share.
The discount imposed on public preferred shareholders values the shares above the market price at which the preferred shares were trading before the deal was announced. Still, the pricing of the exchange, disclosed Monday, reveals that some preferred shareholders are more preferred than others in the deal.
Holders of the private preferred, who are getting a better price, include the U.S. and Singaporean governments, as well as Saudi Arabian Prince Alwaleed Bin Talal. Those investors will exchange preferred shares at par value, or the shares' original purchase price.
Citi had indicated Friday that, in contrast to owners of privately placed preferred stock, the public preferreds wouldn't get to exchange for Citi stock at their preferred shares' par value. Citi said only that the final price would be at a yet undisclosed "premium to market," and some investors anticipated facing a steeper discount to the shares' original purchase price.
Charles Lemonides, chief investment officer of ValueWorks LLC, a New York money manager, was worried Friday that Citigroup was going to shortchange retail investors, offering them inferior terms if they converted their preferred shares to common stock. But the details of the offering, which Citigroup disclosed in a regulatory filing Monday, turned out not to be so bad. The terms are "awfully close to fair and nothing to make hay over," Mr. Lemonides said.
A source who requested anonymity said the U.S. Treasury asked Citi to discount the value that public holders would receive in order to get the most out of its taxpayer-funded investment to bail out Citi.
A Citi spokesman couldn't promptly comment for this piece.
Shares in Citi were recently trading down 14% to $1.29. Citi preferred shares mostly fell Monday, reflecting the decline in the underlying common stock.
Citi will convert all the applicable preferred shares into common stock at $3.25 apiece. A person familiar with the matter said the price was calculated using a 20-day moving average price.
Citi said today in a filing with the Securities and Exchange Commission that holders of Series F, Series AA and Series E preferred stock - representing about $11.8 billion of the total - will be offered 95% of the liquidation value, while Series T holders - representing about $3.2 billion - will be offered 85%.
In treating its preferred shareholders differently, Citi, and even the U.S. Treasury, may be signaling that it will give better terms to private investors willing to take a large stake in recovering financial firms. At the same time, the relatively small haircuts may be an effort to show investors in preferred shares that they will not suffer dire consequences should the government purchase common stock in a firm.
Other reasons for treating the different shareholders differently may include ensuring the cooperation of the private holders, which would leave the government with a smaller stake.
The U.S. government struck a deal with Citigroup last week to convert a large portion of its preferred shares in Citi into common shares. The government will own about 36% of the New York bank.
On Friday, Citigroup said it would offer to exchange up to $52.5 billion of its existing preferred shares for common stock worth $3.25 each. In order to induce investors into exchanging preferred shares into common shares, the bank said it would suspend all dividends paid to common and preferred shares, with the exception of trust preferred securities.
-Contact: 201-938-5400

Citi ratings downgraded by Fitch

Press Release Source: Fitch Ratings
Fitch Downgrades Citigroup's Individual and Preferred Ratings; Affirms 'A+' IDR
Friday February 6, 2009, 10:04 am EST

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has downgraded the following ratings for Citigroup Inc. (Citi):

--Individual to 'C/D' from 'C'

--Preferred to 'BB' from 'BBB'.

These ratings are on Rating Watch Negative by Fitch. At the same time, Fitch has affirmed Citi's Long-term and Short-term Issuer Default Ratings (IDRs) of 'A+' and 'F1+', respectively, given Citi's systemic importance and the magnitude of support measures from the U.S. government. The Outlook for the Long-term IDR remains Stable. A list of Citigroup entities affected by rating changes is listed below.

Fitch's downgrade of Citi's Individual Rating reflects current and expected financial performance challenges. Citi recorded massive losses in fourth quarter-2008 (4Q'08) and faces the prospect of surging asset quality problems globally. Fitch recognizes Citi's efforts in building up its loan loss reserves and reducing problematic exposures across many different categories (including subprime ABS CDOs, Alt-A securities, leveraged finance, CMBS, monolines, and SIVs, among others). Nevertheless, global economic difficulties are causing the inflow of new problems ranging from U.S. and international consumer exposures to large corporate exposures. Consequently, provisioning needs are expected to remain quite elevated for 2009. The U.S. government's loss cap guarantee reduces the long tail risk on a U.S. portfolio of approximately $300 billion. That said, Citi's first loss exposure of $30 billion (above existing reserves) remains sizeable.

In addition to performance challenges, the following factors drove Fitch's decision to downgrade the Preferred Rating:

--a very high level of preferred in the capital structure; -- large servicing costs on preferred;

--the potential for the deferral to conserve capital.

Following the U.S. government capital injections, preferred and trust preferred instruments now total over $100 billion versus tangible common equity of $29 billion at year-end 2008. The cost associated with preferred and trust preferred is considerably higher in 2009 when compared to 2008. Quarterly costs associated with preferred and trust preferred instruments now total $1.8 billion including the new government preferred issues. When combined with a weak performance outlook, the magnitude of these ongoing costs raises the probability for deferral. (Please see commentary: Fitch Sees Elevated Risk of Bank Hybrid Capital Coupon Deferral in 2009 dated Feb. 4, 2009 available on Fitch's web site at www.fitchratings.com).The Individual Rating and Preferred Ratings could face incremental pressure depending on the scope of future losses by Citi. On the other hand, a return to profitability and positive internal capital generation are key factors towards stabilizing Citi's Individual and Preferred Ratings.

Citigroup Inc.

--Long-term IDR affirmed at 'A+'; Outlook Stable;

--Short-term IDR affirmed at 'F1+';

--Senior unsecured affirmed at 'A+';

--Subordinated affirmed at 'A';

--Support affirmed at '1';

--Support Floor affirmed at 'A+';

--Individual downgraded to 'C/D' from 'C'; on Rating Watch Negative;

--Preferred to 'BB' from 'BBB'; remains on Rating Watch Negative;

--Long-term FDIC guaranteed debt affirmed at 'AAA';

--Short-term FDIC guaranteed debt affirmed at 'F1+'.

Citibank, N.A.

--Long-term IDR affirmed at 'A+'; Outlook Stable;

--Short-term IDR affirmed at 'F1+';

--Long term deposits affirmed at 'AA-';

--Short-term deposits affirmed at 'F1+';

--Support affirmed at '1';

--Support Floor affirmed at 'A+';

--Individual downgraded to 'C/D' from 'C'; on Rating Watch Negative.

Citibank (South Dakota)

--Long-term IDR affirmed at 'A+'; Outlook Stable;

--Short-term IDR affirmed at 'F1+';

--Long-term deposits affirmed at 'AA-';

--Short-term deposits affirmed at 'F1+';

--Support affirmed at '1';

--Support Floor affirmed at 'A+';

--Individual downgraded to 'C/D' from 'C'; on Rating Watch Negative.

Citibank Banamex USA

--Long-term IDR affirmed at 'A+'; Outlook Stable;

--Short-term IDR affirmed at 'F1+';

--Subordinated affirmed at 'A';

--Long-term deposits affirmed at 'AA-';

--Short-term deposits affirmed at 'F1+';

--Support affirmed at '1';

--Support Floor affirmed at 'A+';

--Individual downgraded to 'C/D' from 'C'; on Rating Watch Negative.

Citigroup Capital III, IV, V, VI, VII, VIII, IX, X, XIV, XV, XVI, XVII, XVIII, XIX, XX, XXI, XXIX, XXX, XXXI, and XXXII

--Preferred downgraded to 'BB' from 'BBB'; remains on Rating Watch Negative.

Adam Capital Trust II, III, Adam Statutory Trust I-V

--Preferred downgraded to 'BB' from 'BBB'; remains on Rating Watch Negative.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.


Contact:
Fitch Ratings
Joe Scott, +1-212-908-0624 (New York)
Eileen Fahey, CFA, +1-312-368-5468 (Chicago)
Media Relations
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tyrene.frederick-mack@fitchratings.com