Published June 9, 2009

Citigroup set to get Treasury backing for stock swap

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(WASHINGTON) Citigroup is poised to start a US$58 billion stock swap that was delayed last week as Sheila Bair, chairman of the Federal Deposit Insurance Corp, questioned chief executive officer Vikram Pandit's leadership and the bank awaited regulatory approval from other agencies, people close to the bank said.

Ms Bair backed off and the US Treasury Department signalled it would sign a final agreement to take a 34 per cent stake in the bank, clearing the lender to proceed without further review by securities regulators, sources said.

The exchange of preferred stock for common was announced three months ago.

Citigroup is counting on the exchange to replenish an equity base eroded by US$36 billion of net losses during the past six quarters. Last week's encounter with Ms Bair underscores the scrutiny Mr Pandit faces as he steers Citigroup towards partial government ownership to shore up company finances.

'This is not about Pandit himself,' said Joshua Rosner, managing director at New York research firm Graham Fisher & Co. 'Sheila Bair appears to be the only prudential regulator in Washington who has any understanding of the need to force the disgorgement of troubled assets from troubled institutions. And you cannot have a healthy banking institution without doing that.'

Ms Bair's objections threatened to upend progress Citigroup had made in obtaining approval for the exchange, people close to Citigroup said. They came after a Citigroup filing last week with the Securities and Exchange Commission responding to most of that agency's queries about disclosures required in advance of the offer.

Ms Bair, who has a say in Citigroup's fate because of her agency's role as guarantor of a portion of the bank's US$298 billion in US deposits, was pushing for change because she didn't think management had enough commercial-banking experience to lift the bank out of its distressed financial condition, the people said.

Treasury Secretary Timothy Geithner plans to sign the agreement as soon as this week because Citigroup has addressed any lingering concerns from his agency, people familiar with the agency said. - Bloomberg