Funny how a deal that is giving Citi a premium on its common shares that one typically sees in an M&A transaction (ie, the target is sought after) in the course of a salvage operation is being . Similarly, the bank is being asked to have its board members that are insiders resign those seats. Why isn’t Uncle Sam also asking for all board members to resign? While it cannot compel their resignation, under the circumstances it would be appropriate (and anyone who refused would be subject to unfavorable press attention). Board members are recruited by the CEO, hence sympathetic to its interest. And the government could refuse the resignation of any board members it wanted to keep. Frankly, any Citi board member should be ashamed of his abject failure to oversee the company adequately.
From the Wall Street Journal:
The Treasury has agreed to convert some of its current holdings of preferred Citigroup shares into common stock, a move that could better protect shareholders against future losses.
As a condition, the government is demanding that the New York company overhaul its board of directors. Citigroup’s board will soon include a majority of new independent directors, the company said Friday. Chief Executive Vikram Pandit is expected to keep his job under the agreement…..
While the government isn’t injecting additional taxpayer dollars into Citigroup, the agreement will help the company by boosting a key financial metric known as tangible common equity, which essentially measures what shareholders would have left if the company were liquidated. The government and banks have concluded that beefing up tangible common equity was a key to arresting the downward spiral in financial companies’ shares….
Citigroup will still have to endure the so-called “stress test,” which examines banks’ ability to withstand various chilling economic scenarios, and could be required to raise additional capital.
The company will reconstitute its board to include a majority of new independent directors. It said of the 15 current directors, three will not stand for reelection and two will reach retirement age, and it will announce new directors soon.
Citigroup Chairman Richard Parsons has been scrambling to lure new directors. That has proven an uphill battle, with two candidates Citigroup approached rebuffing the overtures, according to people familiar with the matter.