The amount of capital that Citigroup Inc
Citigroup is one of 19 U.S. banks undergoing a stress test, designed to ensure the banks have sufficient capital to withstand the recession. Banks received preliminary results of the test last week, and many are now negotiating with the U.S. Federal Reserve over whether they have sufficient tangible common equity, a measure of capital strength.
The results are expected to show that the banks must raise possibly $150 billion or more in fresh capital, with investors expected to punish stocks of the neediest banks.
When results are announced next Thursday, analysts believe the government will say all 19 banks are solvent, but that some need to raise more capital than others to cushion themselves in case the U.S. recession deepens.
The banks likely to be tagged as needing the most fresh capital are Citi and Bank of America, said Fred Dickson, chief market strategist at D.A. Davidson & Co.
The most vulnerable could face new government capital infusions, which would extend Washington's reach over the sector and potentially put some CEOs' jobs on the line.
Citigroup has multiple ways to raise tangible common equity, including expanding its plans to allow investors to swap up to $52.5 billion of preferred shares for common stock, and selling assets.
These measures are expected to be sufficient to meet any capital the government ultimately presses Citigroup to raise, people familiar with the matter said on Friday.
Representatives from the U.S. Treasury Department and Federal Reserve declined to comment, as did Citigroup.
The Wall Street Journal reported that Citigroup may need to raise as much as $10 billion but added that the discussions are still continuing and that the bank may not need to raise any funds.
Banks will be briefed on the final results of the stress test on Tuesday May 5, and the public will be notified on Thursday, May 7, a government official told Reuters on Friday.
Citigroup's preferred share exchange could be expanded to include more trust preferred securities, of which the bank has at least $15 billion outstanding.
This exchange may be difficult to engineer, because while Citigroup can stop dividends on its preferred shares to encourage investors to exchange them for common stock, it cannot easily stop paying interest on trust preferreds, which are more debt-like. And it is not clear how many trust preferred investors are allowed under their investment policy guidelines to hold common stock.
But the bank still views an expanded exchange as possible, a source said.
The bank announced earlier Friday that it was selling its Japanese brokerage and investment banking businesses for about $5.9 billion, in a deal that will free up $2.5 billion of tangible common equity.
Citigroup's sale of a controlling stake of its Smith Barney retail brokerage business to Morgan Stanley
And in 2010, mandatory convertible preferred securities that the bank sold to the Abu Dhabi Investment Authority should convert into common stock, generating about another $7.5 billion of tangible common equity.
(Reporting by Dan Wilchins, Editing by Dean Yates and Doina Chiacu)