Risky Business: U.S. Gov't to Control 36% of Citigroup

The government found a way to pull Citigroup back from the brink without handing over any more taxpayer money -- at least for now. The Treasury Department announced this morning that it will convert up to $25 billion of its preferred stock holdings in Citigroup to common stock in a move that would give the government a 36 percent share of the embattled bank.

One problem: no one wants to own Citigroup right now. Especially since it just announced it will record $10 billion in write-downs, boosting the year's net loss to $27.7 billion. Accordingly, Citi shares plunged 30 percent in pre-market trading on the Treasury's news.

Citigroup also said it will suspend dividends on its preferred and common shares.

The new deal may not have given the bank any additional taxpayer dollars, but the government is assuming a greater risk by taking on more volatile common shares.

The U.S. government has already given Citigroup $45 billion, for which it received preferred shares and warrants in the company. Two multibillion-dollar lifelines failed to shore up the failing financial institution. This third attempt cuts shareholders’ stake in Citigroup Inc. by 74 percent.

To read more about this partial nationalization and its implications, click here, here and here.