Citigroup to seek shareholder approval on share boost, reverse split

Citigroup Inc. has announced plans to seek shareholder approval to both increase the number of shares outstanding and undertake a reverse stock split as part of the company's effort to exchange common stock for preferred securities.

The embattled financial-services giant said last month it would offer to convert as much as $27.5 billion in preferred stock not held by the federal government to common stock, with the US agreeing to match up to $25 billion of the conversions in the latest effort to keep the banking giant afloat. (See: US government to hike Citi stake; Pandit likely to stay as CEO: reports)

Assuming the maximum amount of the conversions are made, existing common shareholders would see their holdings diluted by nearly 75 per cent, with the government becoming the largest holder at 36 per cent.

Citigroup said in a Securities and Exchange Commission  (SEC) filing today that it has reached definitive agreements with private preferred shareholders to convert $12.5 billion of the securities into common shares.

In it's filing, Citigroup also said it is seeking permission for a reverse stock split, but did not provide further details. There are currently some 5.5 billion shares outstanding, a number that would grow substantially after the stock exchange. As such, a reverse split would both reduce that number and increase the value of each share.

The stock, down 54 per cent this year, has more than tripled in the past two weeks amid a short squeeze. Hedge funds have been covering their shorts amid concern that the stock exchange's terms might change. Shares were up another 11 per cent pre-market at $3.42.