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Citigroup jumps on news that government may boost its stake

23 February 2009 16:46 (UTC +04:00)

Baku-APA-Econoimics. Citigroup Inc., which has accepted $45 billion from the U.S. taxpayer, climbed as much as 28 percent in German trading following a report that the government may increase its stake in the lender, Bloomberg reports.

Citigroup was up 24 percent at $2.41 a share as of 12.05 p.m. in Frankfurt trading today. The New York-based bank slumped 44 percent last week on concern it may be nationalized. It ranks among the 10 worst performers on the S&P 500 index this year.

The lender is in discussions with U.S. officials about an increase in the governmentâ€™s ownership, the Wall Street Journal said earlier today, citing people familiar with the situation. The government may end up owning as much as 40 percent of Citigroupâ€™s common stock, while the bankâ€™s executives would prefer the stake to be closer to 25 percent, the Journal said. Citigroup spokesman Jon Diat declined to comment.

â€œItâ€™s good news that the bank likely wonâ€™t be 100 percent nationalized,â€ said John Haynes, senior U.S. equity strategist at Rensburg Sheppards Plc in London. â€œItâ€™s a relief even if only 20 percent remains out of government hands.â€

Citigroup proposed to its regulators that the government should convert a large portion of its preferred shares into common stock in a transaction that wouldnâ€™t cost taxpayers more money, the Wall Street Journal reported.

Banks may have to be nationalized for â€œa short timeâ€ to help lenders such as Citigroup and Bank of America survive the worst economic slump in 75 years, Senate Banking Committee Chairman Christopher Dodd said on Feb. 20. Bank of America and Citigroup have received a combined $90 billion in U.S. aid in four months.

The U.S.â€™s biggest banks have come under fire from lawmakers who have attacked bonuses and corporate expenses such as new executive jets at a time when the government was giving them billions to revive the economy. Citigroupâ€™s Chief Executive Officer Vikram Pandit has said he will take a salary of $1 and no bonus until the bank returns to profit.