Sunday, March 1, 2009

Citi Shares Drop Below Their $1.50 ATM Fee

American Scofflaw

Last week, we warned that Citigroup and Bank of America would most likely be taken over by the US government within 60 days. Our prediction proved to be optimistic by 58 days, in Citi’s case.

Last Friday, amid growing “rumors” and in an effort to calm investor fears, the Dow Jones news reported :

A source familiar with the situation says Citi isn’t in “any unusual discussions with the government.”

The “Calming” effect was short lived as two days later the news broke that Citi was indeed in talks with the US government in a deal which could result in a 40% stake in the failing bank. Today, the deal was finalized and the US government will convert it’s preferred shares into common. Dilution of common shares are expected to be as high as 75%.

Citigroup also announced a $10 billion 4th quarter loss and the suspension of dividend payments on common and preferred shares. The market reacted to the news by reducing the value of Citigroup shares by 40% as shares slid to a new all time low of $1.50. The selling continued into after hours and traded down to $1.41.

The shareholders have essentially been wiped out. Shares of Fannie Mae and Freddie Mac, AFTER being nationalized, have traded higher than Citigroup is now. Citigroup has been nationalized. The government is now the largest shareholder. I expect even the mainstream media will eventually start calling this what it truly is - A public takeover.

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