28 Feb 2009

US government boosts stake in ailing Citigroup bank

7:21 am on 28 February 2009

The United States government will boost its equity stake in Citigroup to as much as 36%, bolstering the bank's capital base in the latest emergency effort to save the ailing banking giant.

The government will convert up to $US25 billion in preferred shares to common stock in its third attempt to prop up Citigroup in the past five months.

Existing shareholders will see their ownership of the bank fall as low as 26%. The government stake is now close to 8%.

Citigroup in October and November received $US45 billion of taxpayer money, as well as a government backstop to cap losses on $US301 billion of toxic assets.

While the latest rescue does not inject more money into Citigroup, it gives the government more of a voting stake and far greater influence over the bank's operations, short of outright nationalization.

Chief executive Vikram Pandit said senior executives remain in charge of day-to-day operations.

The bank will shake up its board and install a majority of new, independent directors. Five of the board's 15 members are either not standing for reelection or will reach retirement age by Citigroup's annual meeting in April.

Shares of Citigroup fell to a new 18-year low on Friday.