What's going to happen with CITI?
I just finished reading the 41 page proxy that they sent out to try and get my vote for a number of things, but primarily to allow for a change in their Articles of Incorporation to allow them to go from being able to issue 15B shares, to issuing 60B shares.
Unfortunatley I read it too late to cast my vote by the Sept.2 deadline. Not that my paltry holdings would have any impact on the outcome.
It is obvious that they are going to issue more shares and that they are going to do a reverse split.
I would not even begin to try to explain all of the various scenarios and possible outcomes they talked about, but am posting this more to elicit other peoples thoughts.
So please post what you think will happen, and hopefully why you feel that way. Then maybe we can all come to some, at least semi-intelligent decision.
In a nutshell ( and just my limited understanding of it ), they are exchanging newly issued common stock to private holders of $12.5 B of preferred stock, and $12.5 B of Govt held warrants. There are a lot of ifs, ands, and buts involved, depending on who agrees to do what, and how much they agree to do, but that is the simple (and for me simple is what is needed) explanation of what is happening.
As a result of issuing these additional shares, there will be a massive number of shares outstanding, so they will be doing a reverse split. In addition, they want to get the price of their shares up to a more normal (whatever that may be) level.
They will also have the option of issuing more shares for general corporate purposes. (Read CAPITAL).
There are many different ratios proposed for this reverse split, but in my opinion will likely be around 1-5, but could be 1-10, depending on the share price at the time.
This will of course, open them up to short selling, which will probably mean a lot of fluctuations in the shorter term.
I am still long on Citi, and expect them to pay off in the longer term (my horizon is 2-3 years), but what will finally drive the price in the long run is earnings, as it does for all stock.
This is a long post for a one eyed dyslexic to try and edit, so if there are typos please overlook them and fill in the right words.
I view this more as a reduction of debt than totally dilutive. I say this because even though the preferred shares and warrants are technically equity, the interest being paid on them makes them act more like bonds than shares.
I also want to note that KIA (Kuwaiti Investment Agency) has stated that at least for now, they are holding on to their 3B dollars invested in Citi.
Also bear in mind that they may not be masters of their own choices right now.
What are your thoughts? Please give reasons if you are so inclined.