Strapped for Capital, Citi Gets Creative

Faced with regulator pressure to secure $10bn in fresh capital, Citigroup (C) is considering some creative pay alternatives for its employees. It’s also considering forcing shareholders to step up to the fund-raising initiative. Now Citi, which received $45bn in government aid through the Troubled Asset Relief Program (TARP), may pay more employees on a commission basis, pay out larger base salaries to avoid awarding bonuses, or even pay out special stock-based bonuses, unnamed sources told Thomson-Reuters. Citi is also in discussions to force holders of more than $15bn of trust preferred shares to transfer to common stock to meet capital requirements measured in the recent bank stress tests. Citi may threaten to cease interest payments to stock holders that refuse, sources told Financial Times. The considerations come as Citi is reported to face either seeking private capital or conversion of the Treasury Department‘s preferred shares to common stock — consequentially creating a partial-ownership scenario — to meet capital requirements under the government-initiated stress tests. Other banks pressured to raise capital may include Wells Fargo (WFC), Bank of America (BAC) and some regional banks, sources told the Wall Street Journal. The stress tests results, scheduled for public release later this week, may show as many as 10 of the 19 banks tested lack sufficient capital to withstand a deeper, longer-lasting recession than currently anticipated, sources told Bloomberg. Banks can meet much of the capital requirements through stock conversions, although this option carries the negative connotation of a significant government stake, which rings of nationalization. Write to Diana Golobay at [email protected]. Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.