Citi says no to more govt aid; expands public offer by $5.5 bn

With the US government asking Citigroup to raise $ 5.5 billion additional capital, the banking major has said it would not need more Federal funds to plug the gap and would generate the same through an expanded public exchange offer. Citi is among the 10 leading American entities which have been directed by the government to boost their capital, following the stress tests.  

The Vikram Pandit-led Citi would expand its public exchange offer to raise the additional $ 5.5 billion capital, it said in a statement on Thursday. The move would help the entity to boost the capital without additional Federal funds or conversion of the Government's securities into common shares.    

Citi would increase the maximum amount of preferred securities and trust preferred securities that it would accept in exchange for common stock, from $ 27.5 billion to $ 33 billion, to further increase Tier I Common (capital) "without any additional US government investment or conversion of US government securities into common shares". 

The battered entity has received three lifelines from the US and fresh capital worth $ 45 billion. Following the stress tests, 10 out of 19 largest Bank Holding Companies have been asked to raise $75 billion in extra capital, while the rest were found well capitalised.     Commenting on the stress tests results, Citi CEO Vikram Pandit said the "results also reflect 15 months of continuous work, tough decisions and steady execution towards a strong and stable Citi with a clear strategy for the future". 

In a separate presentation on Thursday, Citi pointed out that previous actions such as increasing the capital, divesting risky and non-core assets, reducing expenses and trimming the head count, prepared the entity well for the stress tests. 

The Supervisory Capital Assessment Programme (SCAP), better known as stress tests, were aimed at determining capital buffers sufficient for the 19 entities to withstand losses and sustain lending —even if the economic downturn is more severe than is currently anticipated.
 
"The Government's stress test was a rigorous process that assessed our capital and confirms our view that Citi's plans and actions will give it the financial strength to weather an adverse stress scenario," Pandit said. 

Among the entities being asked to boost their capital, Bank of America needed the most of $ 33.9 billion while Wells Fargo has to raise $13.7 billion, the US Federal Reserve said in a statement.