Citigroup shares fall to 1998 levels

By Jonathan Stempel

NEW YORK (Reuters) - Citigroup (C.N) shares fell on Friday to their lowest level since 1998 as credit and recession fears intensified and the largest U.S. bank said it will use more stock than expected to buy the rest of Japanese brokerage Nikko Cordial Corp 8603.T.

The New York-based bank also sold $3.25 billion of preferred shares, a spokeswoman confirmed. This brought to $18.65 billion the amount raised by Citigroup this week, including $15.4 billion of convertible preferred shares it previously sold to shore up its depleted capital levels.

Citigroup stock fell 49 cents, or 2 percent, to close at $24.45 on the New York Stock Exchange. The shares earlier fell to $23.92, their lowest level since December 1998, when they traded as low as a split-adjusted $22.75. The shares closed one year ago at $54.39.

Citigroup is part of the Dow Jones industrial average .DJI, which gave back an early 182-point gain on concern a $140 billion federal stimulus package for the U.S. economy might not be enough to avoid recession and sufficiently slow growth in consumer credit losses.

Citigroup shares have been under pressure as losses mounted from subprime mortgages and deterioration in consumer credit, and capital levels fell. Its problems led to the November 4 departure of Charles Prince as chief executive. Citigroup on Tuesday posted a record $9.83 billion fourth-quarter loss.

Citigroup agreed on October 31 to buy the 32 percent of Nikko it did not own for $4.6 billion in stock, valuing Japan's third-largest brokerage at 1,700 yen per share.

On Friday, Citigroup said Nikko shareholders will receive 0.602 of a Citigroup share for each Nikko share they own when the swap takes place on Jan 29. Citigroup said the ratio was based on the price of Citigroup stock between January 15 and 17.

Had the swap occurred the day it was announced, each Nikko share would have been worth about 0.35 of a Citigroup share, based on stock and exchange values at that time. Citigroup shares have since lost more than two-fifths of their value.

The $3.25 billion sale of preferred stock consisted of 130 million shares at $25 par, with an 8.125 percent dividend.

Citigroup conducted its share offerings to bolster its Tier-1 capital ratio, which measures the bank's ability to cover losses. The ratio was 7.1 percent at year-end, above the 6 percent signifying a "well-capitalized" bank, but below the bank's 7.5 percent target.

On Tuesday, Citigroup said it sold $12.5 billion of convertible preferred shares to investors including Singapore's and Kuwait's governments, Saudi Prince Alwaleed bin Talal, former Citigroup Chief Executive Sanford "Sandy" Weill, money manager Capital Research & Management, and the state of New Jersey. Two days later, it said it sold $2.9 billion of convertible preferred shares in a separate offering.

Citigroup has said that if it completed the Nikko transaction and sold the $12.5 billion of convertible shares, its Tier-1 capital ratio would be about 8.2 percent.

Through Friday, Citigroup shares had fallen 55 percent in the last 12 months, compared with a 34 percent drop in the 24-member Philadelphia KBW Bank Index .BKX.

(Additional reporting by Kristina Cooke and Pam Niimi in New York and Nathan Layne in Tokyo; Editing by Tim Dobbyn, Phil Berlowitz)