Citigroup’s surprisingly low pricing of a stock offer this week provides a clear sign that investors are still nervous about the banking giant’s ability to regain its financial health.
On Wednesday, Citigroup Inc. said it would sell 5.4 billion shares of stock at a price of $3.15 per share to help repay $20 billion in government bailout loans. That price was 9 percent below where shares were trading before the announcement.
“The market is not buying the Citi story right now,” said Alois Pirker, a research director at financial consultancy Aite Group.
The U.S. government also balked at the deal, stepping away from selling a portion of its nearly 34 percent stake in Citigroup.
Citigroup shares tumbled 24 cents, or 7 percent, to $3.21 Thursday afternoon. They fell as low as $3.13 earlier in the day.
Analysts say Citi, which managed the underwriting of the offer itself, didn’t have much of a choice but to take the hit of selling at such a low price because of uncertainty surrounding the bank.
New York-based Citi still must demonstrate it can maintain profitability for an extended period of time.
Citigroup has been among the hardest hit banks by the credit crisis. It earned $101 million during the third quarter before accounting for preferred stock dividends and the debt exchange that gave the government a stake in the bank. Including those items, Citi lost $3.24 billion. (AP)
