Citi shareholders OK increase in outstanding stock
NEW YORK — Citigroup Inc. said Thursday that shareholders approved a plan to increase the number of outstanding shares so it can complete a debt exchange program that gives the government a minority stake in the banking giant.
Shareholders also authorized the board of directors to complete a reverse stock split any time before June 30, 2010. The board, at its discretion, will be allowed to swap seven shares of outstanding stock for one new share, under the approved plan.
New York-based Citigroup has been among the hardest hit by the credit crisis and ongoing recession. It has received $45 billion in loans from the government and guarantees to protect against losses on more than $300 billion in risky assets. A portion of that loan will be converted to common stock as part of the debt exchange program, giving the government its 34 percent stake in the bank.
The debt exchange provides Citi with a better mix of capital to withstand additional loan losses and further weakening in the economy. By turning the debt into common stock, Citi also no longer has to pay out dividends on it, and that will help improve its cash flow.
Citi has been among the hardest hit banks by the recession and mounting loan losses. The bank set aside $12.68 billion to cover failed loans during the second quarter, compared with $7.1 billion during the year-ago period.
Citi will complete the debt exchange Sept. 10 by swapping interim securities held by the debt holders, including the government, for common stock.
After the exchange is completed, Citi will have about 22.88 billion shares of common stock outstanding. The government will hold about 7.69 billion shares.
Shares of Citigroup rose 17 cents, or 3.7 percent, to $4.73 in early morning trading.
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