US Gov`t to Greatly Raise Stake in Citigroup

The U.S. government has virtually closed a deal to significantly boost its stake in Citigroup by converting part of its holdings of preferred Citigroup shares into common stocks.

U.S. media yesterday said Washington in return will substantially increase its stake in the bank up to 40 percent. This is expected to bring a positive effect in stabilizing the U.S. financial market and relieve the credit crunch as the U.S. government becomes the largest shareholder of Citigroup.

The Wall Street Journal said the Treasury Department has agreed to convert its holdings worth up to 25 billion dollars of preferred Citigroup shares into common stock.

Preferred stockholders receive a guaranteed dividend, while common stockholders have voting rights.

How large the government’s stake in Citigroup remains unknown since the government can convert its stake only to the extent that Citigroup can persuade private investors do so as well.

higgledy@donga.com