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Apr-30-2008Citigroup Sells $3 Billion of Stock to Boost Capital (Update3)(topic overview)
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Citigroup already has raised more than $30 billion of capital since December. A weakening U.S. economy and rising consumer delinquencies forced Chief Executive Officer Vikram Pandit to rescind assurances earlier this year that the bank didn't need to raise more funds. "This was extremely disappointing,'' William Fitzpatrick, an equity analyst at Optique Capital Management in Racine, Wisconsin, said in a Bloomberg Television interview. "We were hoping they wouldn't have to go the equity markets like this.'' Companies usually try to avoid forced stock sales because they dilute the earnings power of current shareholders. Citigroup, the biggest U.S. bank by assets, earlier this month sold $6 billion of preferred shares, a bond-like security that isn't dilutive to common shareholders. Citigroup fell about 3.8 percent to $25.32 in extended trading after the stock sale was announced this afternoon. It fell 49 cents to $26.32 earlier today in New York Stock Exchange trading. Both Pandit and Chief Financial Officer Gary Crittenden had said earlier this year that Citigroup may avoid the need to raise more capital. In January, Crittenden said the company had "stress-tested'' its assumptions under "multiple recessionary scenarios.'' [1] The New York-based bank said the offering will include an overallotment option to buy more shares. "We are issuing common equity at this time as we continue to optimize our capital structure," Gary Crittenden, chief financial officer, said in a statement. "We're pleased with the strong interest we have already received regarding this issuance." Earlier this month, after Citigroup released a $5.1 billion first-quarter loss following a nearly $10 billion loss in the previous quarter, Crittenden told analysts during a call, "We feel very good about our capital position," but that "you can never say never with regards to these things." Crittenden and CEO Vikram Pandit said during that call they would continue selling off noncore assets to shore up its balance sheet, but did not specify a stock offering.[2] The New York-based financial-services firm said it expects the offering to include an over-allotment option to purchase additional shares. On a pro forma basis, after giving effect to Citigroups recent issuance of $6 billion of preferred stock and an assumed issuance of $3 billion of common stock in this offering, as of March 31, the companys Tier One capital ratio would have been about 8.5%. We are issuing common equity at this time as we continue to optimize our capital structure, said Chief Financial Officer Gary Crittenden in a statement. Were pleased with the strong interest we have already received regarding this issuance.[3]
The offering comes less than two weeks after Citi posted a $5.1 billion first-quarter loss and wrote down $12 billion in deteriorating fixed income securities. The bank last week sold $4 billion in preferred stock and in January raised $18.65 million through preferred offering and private placements to shore up its shaky balance sheet. "We are issuing common equity at this time as we continue to optimize our capital structure," CFO Gary Crittenden said in a company statement. "We're pleased with the strong interest we have already received regarding this issuance."[4]
Citigroup said Tuesday the latest offering will further boost the bank's Tier-1 capital ratio _ a measure regulators use to determine a bank's financial strength _ to about 8.5 percent, which is higher than it was throughout all of 2007. Already this year, the company has issued $6 billion of preferred stock and raised an additional $32 billion through stake sales to sovereign wealth funds, and sales of other assets. The cash-raising campaign comes as Citigroup seeks to lower costs after writing down the value of its assets tied to mortgages and other types of debt by about $38 billion. This year, the nation's largest bank by assets has announced about 13,200 job cuts.[2] Since late 2007, Citigroup has raised more than $36 billion of capital, including last week's sale of $6 billion of preferred stock. The bank is also selling assets, such as a $12 billion leveraged loan portfolio it sold this month to private equity investors.[5] Citigroup has had more than $40 billion of credit losses and writedowns since the subprime mortgage market collapsed. The world's biggest banks have raised more than $170 billion in capital to replenish their coffers. Companies usually try to avoid forced stock sales because they dilute the earnings power of current shareholders. Citigroup earlier this month sold $6 billion of preferred shares, a bond- like security that isn't dilutive to common shareholders.[6]
Citigroup said Tuesday that it would have had a Tier 1 capital ratio of 8.5% on March 31 had the preferred and common stock issues been counted at that time. Earlier this month, Citigroup reported a first quarter net loss of $5.1 billion, following a $9.8 billion loss in the fourth quarter. Citigroup's capital raising drive comes as its seeks to plug the hole opened by about $38 billions in write-downs to reflect losses on complicated securities backed by mortgages, high-risk loans like those made to fund LBOs and other damage related to the credit crisis. This year, Citigroup has already raised more than $36 billion in fresh capital by selling stakes to long term investors like sovereign wealth funds and by issuing preferred stock.[7]
Regulators consider banks with a Tier 1 ratio of 6% "well capitalized.'' Citigroup fell about 3.8% to $US25.32 in extended trading after the stock sale was announced this afternoon. It rose 49 cents to $US26.32 earlier today in New York Stock Exchange trading. ''We are issuing common equity at this time as we continue to optimize our capital structure,'' Crittenden said in today's statement.[8] The new equity, when combined with $US6 billion of recently issued preferred stock, will raise Citigroup's so-called Tier 1 capital ratio to about 8.5%, the New York-based bank said in a statement today.[8]
April 30 (Bloomberg) -- Citigroup Inc., the biggest U.S. bank by assets, may fall in New York trading today after offering to sell $3 billion of stock to raise capital amid writedowns on subprime-related mortgages and bonds.[6] NEW YORK (Reuters) - Citigroup Inc (C.N: Quote, Profile, Research ) said on Tuesday it plans to sell $3 billion of common stock to bolster its capital levels, sending its shares down in after-hours trading.[5] NEW YORK -- Citigroup Inc., trying to raise more money to offset two straight quarters of losses, said Tuesday it is selling about $3 billion of its common stock in a public offering.[2] Citigroup Inc., bracing for a continued surge in bad loans, said it plans to raise at least $3 billion in new capital by selling common stock.[9]
SAN FRANCISCO (Thomson Financial) - Citigroup Inc. late Tuesday said it has begun an offering of about $3 billion of common stock.[3] Battered financial titan Citigroup C on late Tuesday said it planned to offer $3 billion in common stock to boost its capital reserves depleted by the credit crisis.[4]
Citigroup has been drained by about $US35 billion in write-downs stemming from credit-market turmoil. Its chief financial officer, Gary Crittenden, said the stock sale will "optimise our capital structure".[10] Citigroup already has raised more than $US30 billion of capital since December. After posting a first-quarter loss of $US5.1 billion on April 18, chief financial officer Gary Crittenden said he couldn't rule out additional rounds of capital-raising. ''This was extremely disappointing,'' William Fitzpatrick, an equity analyst at Optique Capital Management in Racine, Wisconsin, said in a Bloomberg Television interview. ''I would say this is probably it, but I have said that before.''[8]
JPMorgan Chase & Co. and Merrill Lynch & Co. have opted to raise capital in recent weeks by selling preferred shares. Both Pandit and Chief Financial Officer Gary Crittenden had said this year that Citigroup might avoid the need to raise more capital.[6] Citi Markets & Banking is serving as sole book-running manager of the offering. 'We are issuing common equity at this time as we continue to optimize our capital structure,' said Gary Crittenden, Chief Financial Officer of Citi.[7] Chief Financial Officer Gary Crittenden said in a statement that Citigroup had received "strong" interest in the public offering.[5]
The offering is the first in Citigroup's recent capital-raising to involve common stock. "Obviously it's dilutive, but it's smarter than going out and having to pay a high premium for a preferred issuance." said William Smith, chief executive of Smith Asset Management in New York, which owns Citigroup shares. [5] At 4pm in the U.S., in New York Stock Exchange composite trading, Citigroup was down US49 cents, or 1.8 per cent, at $US26.32.[10] The public offering, announced after the close of regular trading in the U.S. yesterday, is likely to slightly dilute current Citigroup shareholders, who have seen the stock price tumble 51 per cent in the past year.[10] Citi Markets & Banking is serving as the book-running manager of the offering. Just last week at a meeting for shareholders, Pandit called 2007 a "year of disappointments" for Citigroup, and that in regards to the recent seize-up in the credit markets, "I think we're closer to the end of this phase than the beginning." The stock market and credit markets have been much calmer than they were earlier in the year despite a rough first-quarter earnings period, and SNL banking analyst Kris Niswander noted that there's been heavy subscription to recent market offerings.[2]
Investors and analysts had thought last week's $US6 billion sale of preferred stock had quenched Citigroup's capital thirst.[10] Citigroup's latest move to raise additional capital comes two weeks after the company reported a first quarter net loss of $5.1 billion and a week after the company sold $6 billion of preferred stock.[7] Merrill Lynch & Co. (MER) last week sold $2.55 billion in preferred stock and the previous week saw J.P. Morgan Chase & Co. (JPM) selling $6 billion in preferred stock.[7] Merrill Lynch MER and Lehman Brothers LEH also recently sold preferred stock and Bank of America BAC last week sold $4 billion in hybrid securities.[4]
April 29 (Bloomberg) -- Citigroup Inc., the U.S. bank hit with writedowns on subprime mortgages and bonds, is selling $3 billion of stock two weeks after reporting its second straight quarterly loss.[1] On April 18, when Citigroup reported a first-quarter loss of $US5.1 billion, Mr Crittenden wouldn't rule out raising more capital. "The fact is, you can never say never with regards to these things," he said. William Smith, who runs a money-management firm that owns Citigroup shares and has been supportive of Mr Pandit's efforts to revitalise the bank, said he wasn't terribly bothered by additional dilution. "It's the credibility of management," he said.[10] The $US9 billion raised since the start of last week is the latest reversal on Citigroup's capital strength since Vikram Pandit became chief executive in December. Earlier this spring, Mr Crittenden said the company was well positioned and didn't need more capital beyond the $US30 billion it had raised at the time.[10] Citigroup already has raised more than $30 billion of capital since December. Earlier this month, Chief Executive Officer Vikram Pandit rescinded his assurances that the bank didn't need to raise more funds.[6]
The move comes barely a week after the New York bank raised $6 billion in the credit markets, bringing the total infusion Citigroup has recently collected from investors to about $39 billion.[9] At the company's annual meeting last week in New York, Pandit said, "2008 remains a challenging time for financial markets and, in general, for our entire industry.'' When Citigroup reported its first-quarter loss, Standard & Poor's said it was reviewing the bank's rating, currently AA-, for a possible downgrade.[6]
"We continue to optimize our capital structure,'' Crittenden said in today's statement. Citigroup sets its Tier 1 target at 7.5 percent, to give itself a margin of error and help avoid a downgrade of debt ratings. When Citigroup reported its first-quarter loss, Standard & Poor's said it was reviewing the bank's rating, currently AA-, for a possible downgrade.[1]
Citi shares fell 82 cents, or 3.1 percent, to $25.50 in after-hours trading after falling 49 cents to close at $26.32. "Having a healthy capital position is a good thing _ they're under a tremendous amount of market stress," Niswander said. "However, if Citigroup would raise this amount of money everyday for the rest of the year, it wouldn't help. AP Business Writer Lauren Shepherd contributed to this report.[2] Citigroup shares, which are trading in the range of $17.99 to $55.55 over the past year, closed Tuesday's regular trading session at $26.32, down 49 cents or 1.83% and lost an additional 62 cents or 2.36% in after hours trading.[7]
Citigroup fell about 3.8 percent to $25.32 in extended trading after the stock sale was announced yesterday. It has declined 11 percent this year.[6] Analysts said selling shares makes sense after Citigroup stock rose 46 percent from the low of $18.00 on March 17, a level not seen since October 1998, on optimism that the worst of the write-downs may have passed.[5] Citigroup is selling $3bn ('''1.9bn) worth of common stock after already raising more than $35bn in new capital since November and saying it was well capitalized earlier this month.[11]
Citi is far from alone among cash-starved banks resorting to raising money in the public and private markets. Earlier this month, Washington Mutual WM, Wachovia WB and National City NCC all raised $7 billion in either stock offerings, private equity investments or both after posting quarterly losses.[4] The largest U.S. bank is raising capital after suffering a $15 billion net loss over the last two quarters, and reporting more than $45 billion of write-downs and credit losses since June 30.[5] Rising consumer-loan delinquencies may force the bank to set aside higher reserves to cover bad debt, Standard & Poor's said. Earlier this year, the bank posted a record loss of $9.83 billion for the fourth quarter.[1]
Bank of America Corp. (BAC) sold $4 billion in hybrid securities last week.[7]
Dozens of banks have been looking to raise capital by issuing common or preferred stock, or debt securities, including Bank of America and regional bank First Horizon National. Even relatively strong banks such as JP Morgan Chase have gone to market to pad their coffers. Many investors are eager to pour cash into the U.S. banking industry despite its continuing woes.[10] The U.S. Federal Reserve is also widely expected to cut interest rates that day. If the central bank suggests that stability is returning to the financial system, bank stocks may rally, which could help Citigroup get a better price for its shares.[5]
The shares will be sold in a public offering, New York-based Citigroup said yesterday in a statement.[6] The shares are being sold in a public offering, New York- based Citigroup said today in a statement.[1]
The New York-based financial services company said it expects the offering to include an over-allotment option to buy more shares.[7]
JPMorgan Chase & Co. and Merrill Lynch & Co. also have opted to raise capital in recent weeks by selling preferred shares instead of common. [1] The company planned the common-stock sale as a companion to the preferred deal, the person said, even though Citigroup didn't mention the stock sale last week.[10] From here you can use the Social Web links to save Citi to raise $US3bn in stock sale to a social bookmarking site.[10]
Citi shares were falling 2.9% to $25.57 in recent after-hours trading.[4] The shares fell 2.6 per cent (US69c) to $US25.63 in after-hours trading.[10]
Matt Chambers and Alex Wilson, Dow Jones Newswires SHARES of Origin Energy soared almost 40 per cent after UK gas giant BG Group bid $12.9 billion for the Australian firm.[10]
In December and January, Citigroup had sold equity to investment funds controlled by foreign governments including Abu Dhabi, Singapore and Kuwait. "This was extremely disappointing,'' William Fitzpatrick, an equity analyst at Optique Capital Management in Racine, Wisconsin, said about yesterday's announcement. "We were hoping they wouldn't have to go the equity markets like this,'' he said on Bloomberg Television. [6]
SOURCES
1. Bloomberg.com: Worldwide
2. Citigroup offers $3 billion in common stock to offset losses | Chron.com - Houston Chronicle
3. Citigroup begins $3B common stock offering | Latest News | News | Hemscott
4. Citi to Sell $3 Billion in Stock | Banks | BAC C LEH MER NCC WB WM - TheStreet.com
5. Citigroup to sell $3 bln in stock; shares fall | Markets | Hot Stocks | Reuters
6. Bloomberg.com: Worldwide
7. Citigroup To Raise $3 Bln In Common Stock Offering [C] - RTTNews, Today's Top Stories, Global Newswires, ToDay's Top News,Global Business news .
8. Citigroup to sell $US3b of stock | theage.com.au
9. Free Preview - WSJ.com
10. Citi to raise $US3bn in stock sale | The Australian
11. Citigroup returns to equity market for $3bn
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