Citigroup faced significant grief in premature 2009. In late phase of 2008, the bank had given consent to $45 billion in preferred equity from the United States management via the Distressed Assets Aid Program (TARP). Yet, the stock had continued to slide in early 2009. In late February, the firm declared that it would convert as much as $50 billion of preferred stock into common stock, at $3.25 per share. The case asks students to assess the pricing of preferred stock relative to common stock at the moment.
As the instance occurs during a period of considerable uncertainty in global capital markets, and standard sources of arbitrage capital have been depleted, the apparent mispricing may not be as appealing as it looks. In the B and C case scenarios, students must determine whether their view of the appropriate pricing changes, when the apparent mispricing worsens. A closing additional teaching point associates to the formation of a synthetic short position using the options markets.
PUBLICATION DATE: September 30, 2009 PRODUCT #: 210015-HCB-ENG
This is just an excerpt. This case is about FINANCE & ACCOUNTING
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