Is this Citigroup rally one that investors can finally believe in?

It depends on how the government ends up converting its large preferred stake in the bank to common stock.

In a joint statement Monday, the Treasury and regulators said banks shouldn’t be owned by the government — and should have a high-quality capital base.

For some banks, a quick way to do that would be to change government preferred shares into common stock, or, second-best, securities that convert into common stock.

Such a move would strengthen tangible common equity, or TCE, a closely-watched measure of capital-strength. Federal officials are considering such a swap at Citi, whose shares leaped nearly 10% Monday.

However, there would be hard choices. Assume the government wants a maximum stake of 40% in Citi’s common equity. Citi currently has 5.92 billion shares outstanding, on a diluted basis, so the government would need to add around 3.95 billion shares for a 40% holding.

The conversion price then becomes the big issue. Any TCE boost needs to see Citi through the downturn. That could mean taking the ratio up to at least that of J.P. Morgan Chase — 3.8%. The government would need to convert $29 billion of preferreds into common equity. But to stay below 40%, would mean converting at a price above $7 per share. That would be so far above Monday’s $2.14 share price that it might be considered politically risky.

If putting Citi’s TCE worries to rest once and for all is the government’s aim, it has two options: Owning more than half of Citi — or paying a big premium.

Write to Peter Eavis at peter.eavis@wsj.com

WAKE UP: We have a depression starting here, and we need COOPERATION, POSITIVE THINKING, and a belief in our leadership to help us through this. If we all ‘rant’ about how a particular plan is not perfect, or about how someone’s ‘rant’ wasn’t perfect, or how one political party or other would do a better job, then we will NOT solve the problems required.

.. This is how bloody revolution starts.

Sold to you

What a game.
Knock down the company to pennies on the dollar – watch the tape and buy your company back with taxpayer dollars – while in the years and years of past you where padding your pocket while driving down your company – removing along the way all the other holders of your company.
What a circle F**k.

I have got to get a life now I sorta understand where this all is going … wish the WallStreet game didn’t involve me so much tho.

No doubt. It’s a pathology whose virulence makes H5N1 look like it’s “for the birds”..

Jack Nicholson well portrayed the, seemingly, apt lines that could act as fine rejoinder to the, willfully, blind among us..

It’s amazing to me that questioning central banks and the Fed’s existence is still considered “tilting at windmills” despite their obvious role at the very center of this whole mess.

Yeah, by all means, let’s dick around about small potato BS like regulating CDS’s, or reinstituting Glass Steagall and leverage limits, while there is this 800 pound gorilla sitting in the room.

How institutionally messed up must a corporation be to place customers, small business people, DEAD LAST in their priorities??

At one point they outsourced their call center to India, which was for the most part an improvement, because these employees were polite, as opposed to the abusive treatment we had frequently received…but those fine folks in Mumbai could not make sense of US Postal Service addresses, which proved a weighty problem…and so after dealing with ShittyBank for far too long I was left asking myself: Does it matter if I bank here? Does anyone care if I do business with Citibank?

“…It looks as though the Treasury is unwilling (or unable) to acknowledge that elephant in the room, which is the first variable that must be solved for if we are to move forward.

Meantime, this issue was met head-on by Ray Dalio, the chief investment officer of Bridgewater Associates, who told a Barron’s interviewer the following:

“What will happen to the pile of bad stuff? Let’s say we are going to end up with the good-bank, bad-bank concept. The government is going to put a lot of money in — say $100 billion — and going to get all the garbage at a leverage of, let’s say, 10-to-1. They will have a trillion dollars, but a trillion dollars’ worth of garbage. They still aren’t marking it down. Does this give you comfort?” ”
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/treasurys-strategy-what-elephant.aspx
http://www.strike-the-root.com/

wordpress does do a nice job communicating URLs, even if it does squash the double-space after periods (.).

like this. as an ex.