3rd rescue not the last?

New York - The United States government's third attempt to help rescue Citigroup will not stanch its losses, which will continue to swell and may lead the bank to require more money in the coming months, according to analysts.

On Friday, Citigroup announced it planned to swop up to US$52.5 billion (S$80.2 billion) of its preferred stock, including US$25 billion of the US$45 billion held by the US government, for ordinary shares.

The Government of Singapore Investment Corporation (GIC) agreed to convert all its US$6.88 billion of preferred stock to common shares for an 11 per cent stake in the bank.

The move did not furnish Citigroup with new money, although it reduced expenses by eliminating dividends on preferred stock. Instead, it converted privately placed preferred shares into common stock, which would absorb the first hit in the event of further losses, at an above-market-value price of US$3.25.

The bank's common shares plunged 40 per cent to US$1.50 on Friday, their lowest level since November 1990. Based on this closing price, GIC's unrealised loss on its Citigroup investment would be about US$3.73 billion.

Citigroup's publicly traded preferred shares, however, reversed a recent sharp sell-off on Friday, as investors bet the government's latest move to bolster the company would protect dividends on preferred stock. One group of preferred shares leapt 33.5 per cent to US$8.13, while another group climbed 49.4 per cent to US$15.75.

'Our belief is that the Citibank trust preferreds will still continue to pay dividends and will not be forced to convert to common,' said Mr Tim Ghriskey, chief investment officer of Solaris Asset Management.

Mr Vikram Pandit, 52, Citigroup's chief executive officer, told investors on Friday that increasing tangible common equity to as much as US$81 billion from US$29.7 billion should 'take the confidence issues off the table' regarding the company's ability to absorb losses.

Still, Citigroup, which lost US$27.7 billion last year, was expected to lose US$1.24 billion in the first half of the year, according to estimates compiled by Bloomberg.

'There's no difference here,' said Mr Christopher Whalen, the co- founder of Institutional Risk Analytics, a risk-advisory firm. 'It won't fix revenue, and you're still going to see loss rates.'