Citi Prices $4.5 Billion Stock Offering

The bank increases its planned offering of common stock by 50% as it attempts to shore up a decimated balance sheet.
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Battered financial titan

Citigroup

(C) - Get Report

priced a larger-than-expected $4.5 billion stock offering Wednesday as it moves to bolster a balance sheet decimated by the credit crunch.

The common stock offering, 50% larger than the $3 billion offering Citi announced Tuesday evening, comes less than two weeks after the bank posted a $5.1 billion first-quarter loss and

wrote down $12 billion

in deteriorating fixed income securities. The bank last week sold $4 billion in preferred stock and in January raised $18.65 million through preferred offering and private placements to shore up its shaky balance sheet.

Taking into account the recent issuance of preferred stock and the issuance of common stock in this offering, as of March 31, on a pro forma basis, Citi's Tier-1 capital ratio would have been approximately 8.6%.

"We were pleased to increase the offering size to $4.5 billion in response to strong demand from a broad base of investors," said CFO Gary Crittenden in a company statement. "This optimizes our capital structure and further strengthens our balance sheet."

Citi shares were falling 2.9% to $25.55 in recent trading Wednesday morning.

The move is sure to rile

already angry

Citi shareholders, whose stake in the bank will be diluted. But Citi is far from alone among cash-starved banks resorting to raising money in the public and private markets.

Goldman Sachs analyst William Tanona lowered his 2009 and 2010 estimates for the stock by 5 cents in each year to $2.95 and $3.70, saying he sees dilution of about 2% on a full-year basis based on a stock price of about $25 a share. Tanona's six month target price is $20 and he has a sell rating on the stock.

"Today's offering represents Citigroup's fifth capital raise for a total of $40 billion over the last five months. Although the company indicated that it was raising the common equity to 'optimize' its capital structure, we struggle to see how selling more expensive common equity optimizes its capital structure unless it was at risk of having its debt downgraded by one of the rating agencies," he wrote.

Earlier this month,

Washington Mutual

(WM) - Get Report

,

Wachovia

(WB) - Get Report

and

National City

(NCC)

all raised $7 billion in either stock offerings, private-equity investments or both after posting quarterly losses.

Merrill Lynch

(MER)

and

Lehman Brothers

(LEH)

also recently sold preferred stock, and

Bank of America

(BAC) - Get Report

last week sold $4 billion in hybrid securities.

Citi Markets & Banking will serve as the sole underwriter of Citi's offering.