April 21, 2008 / 7:28 PM / 11 years ago

Citigroup launches $6 billion preferred share sale: IFR

NEW YORK (Reuters) - Citigroup (C.N) on Monday will sell $6 billion in non-cumulative perpetual preferred shares, said International Financing Review, a Thomson Reuters publication.

A Citibank branch is pictured in Singapore January 22, 2008. REUTERS/Alywin Chew

The shares are expected to pay a fixed 8.4 percent dividend for 10 years and pay a floating rate after that.

Banks this year have been increasing their issuance of preferred shares, which improve their “Tier 1” capital ratios, a measure of their ability to cover losses.

“Banks are moving to shore up their balance sheets after the losses that they’ve had and possibly in anticipation of further losses,” said Standard & Poor’s credit analyst Tanya Azarchs.

Citigroup’s planned sale comes after it posted a $5.11 billion quarterly loss on Friday, hurt by billions of dollars of write-downs tied to mortgages, other debt and a slumping economy.

Responding to the loss, S&P on Friday put Citigroup’s counterparty rating on review for a downgrade, saying problems with its loan portfolio are likely to depress earnings in the medium term.

The bank will have to sustain “high levels of quality capital,” improve its earnings and maintain loan quality on par with other highly rated banks to preserve its rating, S&P said.

Citigroup’s counterparty rating is now “AA-minus,” the fourth-highest investment grade.

Citigroup has cut its dividend and raised more than $30 billion of capital, helping to boost its Tier 1 capital ratio to 7.7 percent from 7.12 percent at year end.

Regulators consider a bank well-capitalized if it has a 6 percent ratio. But, because the capital ratio is volatile, banks like to keep a cushion above the 6 percent level, S&P’s Azarchs said.

Citigroup posted a $5.1 billion first quarter loss on Friday.

In addition to Citigroup, JPMorgan Chase & Co (JPM.N), Wachovia Corp WB.N and Washington Mutual Inc (WM.N) posted weak earnings last week.

On Monday, Bank of America Corp (BAC.N), the largest U.S. retail bank, posted a 77 percent decline in quarterly profit as a growing number of consumers and real estate developers failed to repay loans.

Reporting by Karen Brettell, Dena Aubin and Walden Siew; Editing by Jonathan Oatis

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