- The Washington Times - Thursday, March 19, 2009

NEW YORK (AP) - Citigroup Inc. said Thursday it is planning to increase the number of its common shares outstanding and execute a reverse stock split as part of its effort to convert preferred shares to common shares.

Citigroup’s shares soared more than 10 percent in early trading.

As announced late last month, Citi is seeking to exchange about $27.5 billion in public and private preferred securities as part of its agreement with the Treasury Department, which has pledged to match up to $25 billion of the conversions.

The deal represents the government’s third attempt in five months to prevent the beleaguered banking giant’s collapse.

Citigroup said all private holders of convertible preferred securities, with a total liquidation value of $12.5 billion, have agreed to the swap. The bank will also offer holders of non-convertible preferred and trust preferred securities to exchange their shares. The conversion price is $3.25 per share. Citigroup said it plans to launch the exchange in early April.

The number of the bank’s common shares will increase significantly following the exchange offer and subsequently boost the bank’s capital cushion.

A reverse stock split reduces the number of a company’s shares outstanding, but increases the value of its earnings per share. The market value of the shares remains the same. Companies often elect to do a reverse stock split in an effort to make their stock look more valuable if the share price is significantly low. Citigroup’s shares dropped below $1 a share earlier this month on the fear that the government’s efforts wouldn’t be enough to save it from failing.

Citi’s stock price dropped 77 percent in 2008, and has fallen another 54 percent so far this year. However, its shares have tripled in the past two weeks after the bank said it turned a profit in January and February.

Shares rose 12 cents, or 3.9 percent, to $3.20 in morning trading.

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