DealZone

Shareholders live to see Citi rescue

November 24, 2008

The Citigroup rescue seems to be the latest sign that the government is now wary of scaring away shareholders from financial services companies as it rescues them.

In its massive bailout of the financial giant unveiled Sunday, the government took warrants that would dilute shareholders by only about 4.5 percent. Compare that with the bailouts for Fannie Mae and Freddie Mac as well as AIG, where the government took nearly 80 percent.

The government also only took preferred shares, as opposed to senior preferred shares in the case of Fannie and Freddie and the revised rescue of AIG earlier this month, again sending a comforting signal to existing shareholders in these institutions at a time when the financial services sector is a pariah for many investors.

What changed the government’s heart? Maybe the realization of how bad the crisis has become. And clearly Citi shareholders and the stock market are cheering out loud today.

(Photo credit: Shannon Stapleton, Reuters)

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