This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Citigroup Bailout Changes Aimed at Accounting

The latest alterations Citigroup (C - Get Report) is reportedly seeking to its federal bailout may be aimed largely at an accounting measure that investors paid scant attention to until recently: tangible common equity.

Citi, according to published reports this week, is negotiating to convert some or all of the government's $45 billion preferred equity stake into common shares. The stock rallied, even though such a move would not give the bank any new capital and would dilute current common shareholders.

Converting the government's preferred stake into common stock would eliminate the 5% dividend Citi pays on the preferred shares, thus saving $563 million per quarter. But another significant advantage of the conversion is completely cosmetic. The new common shares would be counted as tangible common equity, which measures common shareholder's equity capital less goodwill (the accumulated premiums a company has paid for acquisitions) and other intangible assets.

Troubled insurer AIG (AIG - Get Report) reportedly is considering a similar move.

In an environment of uncertainty, tangible common equity gives the common stockholders an idea of what their stake is actually worth. It provides the most conservative estimate of the value of the common shareholders' stake in the company. With the government a major investor in many of the larger banks, the Federal Reserve is expected to emphasize tangible common equity in the " stress tests" it intends to use to determine which financial institutions are worthy of government aid going forward.

But there are other, more traditional ways to gauge capital adequacy.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AIG $57.43 0.00%
C $53.07 0.00%
BAC $15.56 0.00%
JPM $62.84 0.00%
WFC $54.05 0.00%

Markets

DOW 17,826.30 -279.47 -1.54%
S&P 500 2,081.18 -23.81 -1.13%
NASDAQ 4,931.8150 -75.9760 -1.52%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs