Looks as though the stock price wasn’t lying. Citing people familiar with the situation, the Wall Street Journal is reporting that the United States and Citigroup are in talks that could result in the U.S. owning as much as 40% of Citi’s common stock. While the bigger stock position wouldn’t cost taxpayers additional money, Citi shareholders would see the value of their stock diluted. From the Wall Street Journal:When federal officials began pumping capital into U.S. banks last October, few experts would have predicted that the government would soon be wrestling with the possibility of taking voting control of large financial institutions. The potential move at Citigroup would give the government its biggest ownership of a financial-services company since the September bailout of insurer American International Group Inc., which left taxpayers with an 80% stake.The talks reflect a growing fear that Citigroup and other big U.S. banks could be overwhelmed by losses amid the recession and housing crisis. Last week, Citigroup’s share price fell below $2 to an 18-year low. Bank executives increasingly believe that the government needs to take a larger ownership stake in the institution to stop the slide.Under the scenario being considered, a substantial chunk of the $45 billion in preferred shares held by the government would convert into common stock, people familiar with the matter said. The government obtained those shares, equivalent to a 7.8% stake, in return for pumping capital into Citigroup.
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