By Deepa Seetharaman
NEW YORK, Feb 27 (Reuters) - Investors sold off shares of Citigroup on Friday, but the banking company's preferred shares reversed a recent sharp sell-off as investors bet the government's latest move to bolster the company would protect the dividend on preferred stock.
Citigroupcommon stock tumbled nearly 40 percent to $1.50 after the government said it would take up to a 36 percent equity stake and would convert up to $25 billion in preferred shares to common stock.
Existing shareholders could see their ownership of the stock diluted by 74 percent. For details, see
One group of preferred shares, however, leapt 33.5 percent to $8.13, after falling as low as $2.80 Feb 20. Another group climbed 49.4 percent to $15.75 after hitting $6.30, also on Feb 20.
The response was due in part to quelled fears about nationalization, the fate met by battered mortgage lenders Fannie Mae and Freddie Mac.
'Our belief is that the Citibank trust preferreds will still continue to pay dividends and will not be forced to convert to common,' said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.
That is not what happened with Fannie Mae and Freddie Mac when the government took them over last year. Bond holders were left whole, but common and preferred stock investors were wiped out.
'If you wipe out the preferred stock at banks, insurance companies own a lot of this preferred stock, so in that case you're going to have to shore up their capital base as well,' said Haag Sherman, managing director of Salient Partners in Houston, in an interview with Reuters TV.
(Additional reporting by Pedro DaCosta; Editing by Dan Grebler) Keywords: CITIGROUP PREFERRED (deepa.seetharaman@thomsonreuters.com; +1 646 223-6125; Reuters Messaging: deepa.seetharaman.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW YORK, Feb 27 (Reuters) - Investors sold off shares of Citigroup on Friday, but the banking company's preferred shares reversed a recent sharp sell-off as investors bet the government's latest move to bolster the company would protect the dividend on preferred stock.
Citigroupcommon stock tumbled nearly 40 percent to $1.50 after the government said it would take up to a 36 percent equity stake and would convert up to $25 billion in preferred shares to common stock.
Existing shareholders could see their ownership of the stock diluted by 74 percent. For details, see
One group of preferred shares, however, leapt 33.5 percent to $8.13, after falling as low as $2.80 Feb 20. Another group climbed 49.4 percent to $15.75 after hitting $6.30, also on Feb 20.
The response was due in part to quelled fears about nationalization, the fate met by battered mortgage lenders Fannie Mae and Freddie Mac.
'Our belief is that the Citibank trust preferreds will still continue to pay dividends and will not be forced to convert to common,' said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.
That is not what happened with Fannie Mae and Freddie Mac when the government took them over last year. Bond holders were left whole, but common and preferred stock investors were wiped out.
'If you wipe out the preferred stock at banks, insurance companies own a lot of this preferred stock, so in that case you're going to have to shore up their capital base as well,' said Haag Sherman, managing director of Salient Partners in Houston, in an interview with Reuters TV.
(Additional reporting by Pedro DaCosta; Editing by Dan Grebler) Keywords: CITIGROUP PREFERRED (deepa.seetharaman@thomsonreuters.com; +1 646 223-6125; Reuters Messaging: deepa.seetharaman.reuters.com@reuters.net) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.