Washington, Feb. 27 (ANI): The US Government has reached an agreement with beleaguered Citigroup Inc., under which the government is likely to substantially increase its stake in the bank and demand a boardroom shakeup, the Wall Street Journal reports.
According to the deal, which is expected to be announced early Friday, the Treasury Department has agreed to convert some of its current holdings of preferred Citigroup shares into common stock.
Sources claimed the government would convert its stake only to the extent that Citigroup can persuade private investors. The Treasury will match the private investors' conversions dollar-for-dollar up to 25 billion dollars.
The Government's new stake will hinge on the amount of preferred shares that private investors agree to convert into common stock. The Treasury's stake is expected to rise to 30 percent to 40 percent of Citigroup's shares, sources said.
To ease investor jitters about the adequacy of Citigroup's capital base, the government would demand that the New York based company overhaul its board of directors, as the condition of the deal.
Although, key details of the Citigroup-US pact remain unclear, the Treasury may call for Citigroup's board to be comprised of a majority of independent directors. Chief Executive Vikram Pandit is expected to keep his job under the agreement.
After a week's negotiations, government hammered its conditions to the Citigroup, which are designed to make up for the fact that taxpayers will bear greater risk holding common stock rather than preferred.
The Citigroup deal is significant not only for its importance to Citigroup's financial health, but also because it is expected to serve as a model for future federal conversions of preferred shares into common stock in some of the nation's biggest banks. (ANI)