Citi Stock's Wild Ride Explained in Arb Trade

Updated from Thursday, March 5

Citigroup (C Quote) shares finally broke the buck on Thursday, but the fallen giant's rollercoaster ride toward penny stock-dom may have more to do with a popular trade for hedge funds than the company's fundamentals.

Citi and the Treasury Department last month revamped a federal bailout plan, in which the bank would exchange common shares for trust and preferred securities held by both the government and private investors.

The complicated deal drastically changed the ownership structure of the firm, and offered Uncle Sam a 36% stake in Citi. Although most of the news was widely anticipated, Citi shares plunged over 40% in trading that day, and closed down 96 cents at $1.50. ...