NEW YORK (Reuters) - Citigroup Inc (C.N) said on Thursday it may conduct a reverse stock split as part of an exchange offer that could give U.S. taxpayers a 36 percent stake in the bank.
Citigroup, which took $45 billion from the government’s Troubled Asset Relief Program (TARP), also defended its plan to renovate executive offices at its Park Avenue headquarters. It said it expects the plan to save $20 million, “an amount well in excess of the project costs.”
Chief Executive Vikram Pandit is trying to slash expenses and restore the third-largest U.S. bank to health after $37.5 billion in losses over five quarters, largely from exposure to housing-related and complex debt.
Citigroup shares slid below $1 two weeks ago, despite three U.S. government attempts to prop up the bank since October, and the bank has eliminated its common stock dividend.
As part of a February 27 government bailout, Citigroup is offering to exchange common stock for up to $27.5 billion of its preferred stock at $3.25 per share. The government would match up to $25 billion of its preferred stock in the exchange.
Citigroup will also seek shareholder approval for a reverse stock split that could take place before June 30, 2010. It proposed seven possible exchange ratios, ranging from 1-for-2 to 1-for-30.
Reverse splits reduce outstanding shares and are often used to boost low share prices, but the value of investors’ holdings does not change. Citigroup and its predecessors conducted seven regular stock splits between 1993 and 2000, but none since.
Its shares closed down 48 cents, or 15.6 percent, at $2.60. They traded above $50 as recently as July 2007.
Jeff Harte, a Sandler O’Neill & Partners LP analyst, said the reverse split could boost Citigroup’s share price above $5, making it easier for institutional investors to buy the stock.
Citigroup shares have been volatile in part because some investors are buying preferred shares and selling the common shares short, or using options. “Arbitrage profit potential remains large, but so does the related risk,” Harte wrote.
The preferred stock exchange would not give Citigroup more cash but would bolster capital. Chief Financial Officer Gary Crittenden wrote investors that a successful exchange is also “critical in protecting market confidence in the company.”
Citigroup has 5.5 billion common shares outstanding and said the exchange could increase that number to between 13 billion and 21 billion, depending on how many investors participate.
Pandit has said Citigroup made money in January and February, but the bank still faces heavy pressure from politicians to improve how it goes about conducting business.
On February 11, Pandit, who sold his hedge fund firm to Citigroup for an estimated $800 million in 2007, told Congress he had cut his own salary to $1 a year. “I get the new reality, and I will make sure Citi gets it as well,” he said.
Citigroup recently scrapped orders for three private jets, French planemaker Dassault Aviation said on Thursday. It also canceled trips to a convention and a Bahamas resort for employees of its Primerica insurance unit.
At the same time, Citigroup plans to go ahead with the Park Avenue renovations that will cause top executives to move from two floors to “smaller, simpler offices” on one floor. Citigroup said it plans to sublet space it doesn’t need.
The bank said it reduced real estate and equipment expenses by $100 million in the last two quarters, adding that savings will be “significantly higher” in 2009.
Citigroup plans to shed more than 10 million square feet, or 11 percent, of its real estate space worldwide this year.
Reporting by Jonathan Stempel; Additional reporting by Doris Frankel in Chicago and Tim Hepher in Paris; editing by John Wallace and Jeffrey Benkoe