Citi Cedes to Feds, as Rivals Break Free

Updated from 9:55 a.m. EDT

Citigroup (C) is taking on the government as its largest investor through a conversion of preferred stock to common shares Wednesday, a day after the government granted 10 rivals freedom from the federal bailout program.

Citi on Wednesday said it is boosting its balance sheet through the conversion of roughly $58 billion worth of convertible and non-convertible preferred shares and trust preferred securities owned by the government and preferred stakeholders into common shares, according to a release.

Under the agreement, announced in February, the Treasury Department will exchange a portion of its preferred stake -- roughly $25 billion -- for interim securities and warrants. The government, which has injected a total of $45 billion in the struggling company, will also exchange the remaining preferred shares into trust preferred securities, Citi said.

After the exchange, the government will have roughly a 35% stake in Citi.

Citi's conversion, first announced in February, is expected to boost the struggling financial institution's tangible common equity level by $61 billion to approximately $92 billion and its Tier 1 capital by $64 billion to $185 billion, according to March 31 figures.

The exchange offer is set to expire on July 24.

"Following completion of the exchange offers, Citi will be among the best capitalized banks in the world," CEO Vikram Pandit said in a statement. "We have the right strategy, the right structure and the right people. I'm confident that we will continue to make progress and that the strength of our franchise will be evident as the economy improves."