ZT: Citi, Big Brother and the Stock Price (C)

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Citi, Big Brother and the Stock Price (C)
September 3, 2009 12:47 PM EDT

Today, Citigroup (NYSE: C) announced important news that investors, prospective investors and traders should pay close attention to. The company announced that shareholders approved three resolutions; raising the number of authorized shares to 60 billion; eliminate the right of the holders of common stock to vote on any amendment to the restated certificate of incorporation that relates solely to the terms of any series of preferred stock; and authorize (but do not require) the Board of Directors to effect a reverse stock split, at one of seven ratios, at any time prior to June 30, 2010.

Market participates should recognize that shortly billions and billions of more common shares will soon be available to be sold by the U.S. government and former preferred holders and a reverse stock split may needed to keep the stock above a certain level. We're going to attempt to lay it down simple so you can understand what is going on in this complicated situation.

Authorized Shares Increased to 60 Billion:
Citi shareholders approved the resolution to increase the authorized common share to 60 billion, which clears the way for the company's preferred exchange offer. The 60 billion will be the shares authorized and not outstanding. The shares outstanding is the most important number, which is used to calculate market capitalization. The shares outstanding after the completion of the exchange offer on September 10 will be 22,880,304,796 shares. Right now there are 5.5 billion shares outstanding. So about 17.4 billion more common share will be coming to the market shortly and will be available for sale immediately. That is 3x the amount of common shares currently on the market. But it should be noted that the U.S. government's part of the new shares if about 7.7 billion.

The new market cap of Citigroup after the exchange will be based on the 22.9 billion shares outstanding and is about $108 billion and the current market price of $4.72. Currently at financial website like Yahoo! Finance the market cap is quoted at $26 billion - this is plain wrong.

Now with 60 billion shares authorized, this leaves about 37.1 billion more shares that could be issued. And since the U.S. government still has about $27 billion in Citiroup preferred stock it makes us nervous that, while not convertible, the company and the government could eventually come to an agreement to convert the remaining preferred into common shares. This could bring another 5-10 billion more of these common shares out. That would swell the market cap to about $132-$155 billion, based on the current market price of $4.72. If eventually all the 60 billion shares come to the market, this would make the market cap $283 billion, based on the based on the current market price of $4.72. To put this in perspective, the current market cap of JPMorgan Chase (NYSE: JPM) is $164 billion, the market cap of Goldman Sachs (NYSE: GS) is $82 billion and the market cap of Wells Fargo (NYSE: WFC) is $124.6 billion. The market is already valuing Citi more than Goldman Sachs, which is crazy. Should it value it more than the others?

We asked the question to Citi - Can these additional authorized shares come out to the market any time soon? The representative from Citi tried to quell our fears, saying they are comfortable with their current capital structure, including the remaining $27 billion in preferred shares owned by the U.S. government, and feel that this could remain without converting to common shares. In addition the representative told us the ratio of authorized to outstanding is a similar ratio before the exchange offer and is standard for the industry. We haven't check that this is the case, but we will take his word.

Reverse Stock Split:
Shareholders approved a resolution so that at any time prior to June 30, 2010 the company can complete a reverse stock split under one of seven reverse split ratios, 1-for-2, 1-for-5, 1-for-10, 1-for-15, 1-for-20, 1-for-25 or 1-for-30.

Under a reverse stock split, the number of shares outstanding decreases in a hope that the stock price would go higher. Fundamentally nothing changes. So if you have 100 shares, if a 1-for-2 reverse stock split is commenced, you would own 50 shares. All things being equal, under this scenario, if the stock was at $4.72 before the reverse split it would be $9.44 after the reverse split. Your economic value of Citigroup common stock ($472) would not change. Of course, a reverse stock split is a sign of weakness and many times the stock continues lower after the reverse split.

When we talked to the Citigroup representative he indicated that a reverse split is still being considered, but may not happen at all. This would be the best case scenario for investors. But if the stock can't hold the $5 level the company may be forced to complete the reverse split as many institutional portfolio managers won't be able to buy a low priced stock below that level. A 1-for-2 reverse stock seems like the most likely scenario if a reverse split is needed at all. Once all those new shares hit the market we will know for sure.

U.S Government's Stake:
Upon completion of the exchange offer, the U.S. government will own 7,692,307,692 shares, or 33.6% of outstanding shares. Our understanding is that these shares are freely tradable and could be sold right away. Are these shares in "tight hands" or will the U.S. government sell them? That is an interesting question and will be fun to watch. Our guess is that it is unlikely that he U.S. government will sell right away or in the open market. Maybe a company buyback or equity offering far off in the future. Or maybe they can unload the position to a large private investor. We are wondering if the government will be required to file a 13D with the SEC. Hmmm, that would be interesting.

In addition to the common stock that will be owned by the government, the U.S. still owns another $27 billion in Citigroup preferred stock.

Summary:
So basically 17.4 billion more Citi common share will be coming to the market shortly and will be available for sale immediately. That is 3x the amount of common shares currently on the market. The government's 7.7 billion is likely in 'tight hands' so you have about 9.7 million shares that could be dumped on the market right away. How will the stock react? If it can hang in the $5 range then the company can avoid a stock split, if it falls hard than a reverse stock split could be consummated. Citi is still on the hook for another $27 billion of preferred owned by the U.S. government, which could eventually be bought back or converted to common.

yam

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Safari

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随机行走

Cramer's 'Mad Money' Follow-Up: Sept. 9

Citigroup(C Quote): Cramer saw another 60 cents of upside for Citigroup but recommended waiting for the stock to pull back below $4 before buying.

sooners

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story

citi 今天在最后一分钟出了超级大量，在这样的价位出现大量，接下去几天大升的可能非常大了。再次破5元很快就看的到了，如果可以破5。5，那么6元在9月份都很可能出现了。