In its most daring bid yet to stabilize Citigroup, one of the nation's largest and most troubled financial institutions, the Treasury Department announced Friday that it would vastly increase its ownership of the company.
After two multibillion-dollar lifelines failed to shore up Citigroup, the government will increase its stake to 36 percent, from 8 percent.
Chief executive Vikram Pandit will remain, but Citigroup will shake up its board so that it has a majority of new independent directors, a move that federal regulators had been pursuing. The announcement comes as the bank said its 2008 loss had spiraled to $27.7 billion, among the largest in corporate history. Under the deal, the Treasury Department agreed to convert up to $25 billion of its preferred stock investment in Citigroup into common stock, giving taxpayers more risk, but more potential for profit if the company recovers.
The plan was intended to reassure the markets and stabilize Citigroup, but plenty of uncertainty remains. Shares were down 36 percent, to $1.57, on Friday afternoon, and analysts worry that regulators are running out of options.
Citigroup may be both too big to fail and too unwieldy for the government to take over. Nationalization is also politically unpalatable. Instead, analysts say, Citigroup may be forced to downsize and may need more taxpayer support to nurse itself back to health.
NEW YORK TIMES
