Citi in talks over bigger U.S. stake - report
Bank and regulators said to discuss plan for government to convert preferred shares to common stock.

NEW YORK (CNNMoney.com) -- Citigroup Inc. is in discussions with regulators about a plan for the federal government to take a larger ownership stake in the bank, according to published reports.

The Wall Street Journal, citing sources familiar with the matter, reported that the government would convert a large portion of its preferred Citigroup shares to common shares.

The government received the preferred shares in return for investing $45 billion in Citi as part of the $700 billion bailout of the financial system.

According to the Journal, the talks involve Citi executives and regulators at the Federal Reserve and Office of the Comptroller of the Currency. Officials in the Obama administration have not said whether they support the plan, the Journal reported.

Citigroup spokesman Michael Hanretta declined to comment on the Journal report. On Friday, the bank issued a statement saying that its capital base is "very strong" and capital reserves were among the highest in the industry at the end of the fourth quarter.

"We continue to focus and make progress on reducing the assets on our balance sheet, reducing expenses and streamlining our business for future profitable growth," Hanretta said.

The Treasury Department, which has spearheaded recovery efforts for the financial system, declined to comment on the report, noting it has a policy of not discussing conversations with specific banks.

Yet the department noted that it was open to allowing financial institutions to covert government's existing preferred shares into new convertible preferred stock - a move that would ultimately allow Citigroup to strengthen its capital levels.

In many ways, that is exactly what government officials are reportedly considering, according to the Journal.

"We've made clear that we will do what is necessary to strengthen and stabilize the financial system so that it can provide the credit necessary to support economic recovery," Treasury spokesman Isaac Baker said in a statement to CNN.

The report is sure to stoke speculation about whether the Obama administration may have to nationalize large banks to stabilize the financial system.

The question of nationalization has weighed on the minds of investors in the two weeks since Treasury Secretary Tim Geithner announced a comprehensive stability plan that fell flat.

Yeah, market is getting hammered. Great time to start saving for retirement.

Do you guys think we'll see a big drop in the numbers when (and I guess it could still be if) the first bank faces nationalization?

Do you guys think we'll see a big drop in the numbers when (and I guess it could still be if) the first bank faces nationalization?

Aye..you guys have the wrong mindset. Everything is so low...NOW...or, in a few months... is the to invest. When the market inevitably rises, the people who held on will make a great deal of money.

That's tough. If they had come out with a detailed nationalization plan from the jump, the market wouldn't have balked nearly as bad as they will now. Because there going to have to do a 180 and go against what they initially said by nationalizing, it will cause a market backlash. The extent of that backlash will be determined by the scope, transparancy and intelligence of the plan coupled with the amount of regulation attached.

Short answer, yes, the market won't like government intervention and it will drop. The thing is, we're pushing 7000 already, there simply isn't much lower it can go. I don't see how it could get under 6000, but then again, at this point, nothing would surprise me.


@Jedi - I hope you're not planning on taking that money out in the next Decade, if that's the case, you made a great investment and should see a very good return, depending on how you invested it. There is no short term gain to be had in this market, even when it turns around it won't do so quickly.

Yeah it is worrisome, but they can't let AIG fail. It would be disastrous for the economy.

nghtvsn and FILMO,

AIG is one of 4-6 financial institutions that simply ARE too big to fail, like it or not. The market dipped below 7k, but things would be much worse if we had taken the hands off approach of the 20's.

To date, the government has loaned AIG $150 billion dollars. A ton of money, but without it, AIG fails. The scope of that failure would trickle throughout the entire system, causing more failures like dominoes. The dollar, who's value is currently better than recent memory, would be worthless. The economy, which is barely hanging on, would plummet.

All that said, $150 billion is a huge number. You suggested the company breaking apart, that's actually what's happening. The government has bought an equity stake in this company, and is stabilizing it while it sells off assets. To date, over 10 pieces of AIG have sold interests. The money from those sales has gone back to uncle sam, to the tune of $50 billion. That's right, they've payed back a third of their loan by doing exactly what you wanted.

This is being done just so they maintain their credit rating and equity margins, thus allowing their business to function while they stabilize and sell it. AIG will never again be the AIG we knew, but they don't have to take down everyone else with them.

Buffet recently wrote an interesting piece criticizing companies for how intertwined they were, for the domino effect they created, for the reliance on each other. Like it or not, it exists, and you can bitch and moan about the market but letting AIG fail would have been unrecoverable for our financial system.

Disastrous?

AIG is a privately (was a privately) owned corporation that now has gotten enough Billions of dollars to equal the amount given out to the public as a stimulus last summer. I got 600$ out of that and this rat hole of a company is supposed to be too big to fail because assholes are telling the public that?

Are we kidding ourselves here? Just because they say it is makes it the only truth here? Are we seriously believing any of their BULLSHIT anymore? I mean.. PLEASE.

This company needs to be dissolved, broken apart, allowed to go into bankruptcy. Whatever it takes to stop us (me) (We) the american public from handing out anymore cash to this money losing / black hole / run into the ground / crap company. Pretty Please.

Disastrous.

We're below 7k, the economy is tanking, unemployment is rising, definite recession and letting this one jack company fail would be Disastrous...

oh, Bernanke says we'll be on the rebound in 1 year too.