Citigroup began a long-delayed $58 billion stock swap on Wednesday that is expected to make the U.S. government the bank's largest shareholder by far with a 34 percent stake.
The nation's third-largest bank plans to swap common stock for as much as $33 billion of preferred shares, and convert as much as $25 billion of preferred shares held by the U.S. Treasury into common stock.
Citigroup's swap could result in the issuance of more than 17 billion new common shares, diluting the holdings of existing investors by 76 percent. The public exchange expires July 24.
Separately, Citigroup [C 3.54 0.13 (+3.81%) ] said it has adopted a three-year plan to preserve tax benefits, which it said was designed to discourage shareholders other than the government from amassing a 5 percent stake or adding to such a stake.
The New York-based bank said the stock swap could make it one of the world's best-capitalized banks, adding up to $61 billion of tangible common equity and $64 billion of Tier-1 common equity.
Citigroup had planned to begin the swap in April. It delayed the start after the Federal Deposit Insurance Corp threatened to downgrade a government rating for the bank, but that matter was resolved.
The bank agreed to the swap in February as part of a federal bailout, after $37.5 billion of losses in the previous five quarters. That bailout came after Citigroup had taken $45 billion from the Troubled Asset Relief Program (TARP).
Citigroup's exchange offer originally called for a swap of as much as $52.5 billion of preferred stock into common stock at a conversion price of $3.25 per share.
The bank increased the offering's size after regulators last month told it to raise a $5.5 billion buffer following a "stress test" of its ability to handle a deep recession.
Federal regulators on Tuesday allowed nine other banks that underwent similar tests, including larger rival JPMorgan Chase [JPM 35.13 -0.13 (-0.37%) ], to repay their TARP money.
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