Taxpayers Could Own 40% of Citigroup's Common Stock, Implied Volatility and Option Volume Popped on Friday

It looks like there's a possibility that the Gov will convert 7.8% of their preferred Citi stock into common stock. This would bring massive dilution to the common holders however it would improve the bank's financial health by boosting it's TCE (tangible common equity) ratio. Preferred stock is not factored into the ratio. Citigroup officials are also trying to persuade other large preferred stock holders to convert like the Government of Singapore Investment Corp., Abu Dhabi Investment Authority and Kuwait Investment Authority. This could possibly stem off bankruptcy fears. $C's implied volatility was definitely predicting this type of news on Friday (chart). We'll see how the US markets react to this. It looks futures are up overnight. It's important to know that this is just a proposal and could fail. Also we have Bank of America and the autos to deal with so it's a mess but hopefully we get through this eventually..
"Citigroup Inc. is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people familiar with the situation.

While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup's common stock. Bank executives hope the stake will be closer to 25%, these people said." WSJ

http://online.wsj.com/article/SB123535148618845005.html



Citigroup Options & Volatility (ISE.com)


Also read this WSJ Article: 'Nationalize' the Banks. Dr. Doom says a takeover and resale is the market-friendly solution.

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