Citi Scrambling To Raise Cash After Failing Stress Test

When the history of this crisis is written, it will likely be the government’s unending attempts to save two disastrous companies known as AIG and Citigroup that get the most attention. 

We don’t suppose there’s any way we could persuade Tim Geithner to just cancel this crazy share swap and just finally seize Citi and be done with it? 

We didn’t think so. 

So prepare to take it on the chin yet again, dear taxpayer.

Francesco Guerrera, FT: Citigroup has told US regulators it could fill the capital shortfall identified in the government’s “stress test” by selling large businesses, asking more investors to convert their preferred shares into common stock and reducing its balance sheet.

Executives are trying to persuade the government Citi does not need more capital beyond its recent plans to bolster its battered balance sheet and cut costs…

Citi executives argue that divestitures, such as the planned $5.2bn sale of Japan’s Nikko Cordial to Sumitomo Mitsui, the possible expansion of an existing conversion offer, and cost-cutting would ensure it has enough capital to withstand the crisis.

People close to the situation said Citi could sell several units in Citi Holdings, the division that holds its non-core activities. Citi executives do not rule out shedding businesses deemed as core but argue that, if the company has to raise capital, the first option is to accelerate plans to sell unwanted businesses.

Citi has also looked at adding to its planned conversion of $52bn of preferred shares held by the government and other investors by including trust-preferred shares, although that idea was losing ground last night. Some insiders argue it could be difficult to persuade holders of such shares – a hybrid of debt and equity – to exchange them for common stock because they rank as debt and pay interest.

And then of course Citi is also protesting that the government’s stress test is too harsh, that the losses in the giant credit card business will be smaller than the government thinks, etc.

And at the same time it’s asking Geithner for permission to pay massive special bonuses to employees because otherwise they’ll leave and go work somewhere else.

The joys of living in Bailout Nation.

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