If the latest Citi bailout goes as planned, US taxpayers will now own 36% of Citigroup. They will have paid way too much for the stock, thanks to Timothy Geithner, but ever-cheery Citi CEO Vikram Pandit is happy to report that this latest bailout should end speculation that the company will be nationalized:
“In many ways for those people who have a concern about nationalization, this announcement should put those concerns to rest.”
We guess that’s why the stock is down 30% this morning–because nationalization fears have been put to rest. After all, if the preferred shareholders convert, Citi will now have $80 billion of common equity, which is no doubt enough to absorb the future losses on its crumbling $1+ trillion balance sheet (the company only lost $10 billion last quarter!).
But remind us again why these preferred shareholders are going to convert? Thanks to the ever-generous Timothy Geithner, the conversion price is $3.25. Citi’s stock is now available for $1.80. So why, exactly, are the private-market preferred holders like Prince Alwaleed going to give up their preference and fat preferred dividend to overpay for common stock?
How much longer are we going to have to go through this? At this point, it’s just plain embarrassing. Can’t we just grab the place, chop it up, and sell off the pieces? What the market’s telling us this morning is that that outcome is inevitable, so we might as well get on with it.