Wednesday, December 16, 2009

Citibank Shares Plummet on News of New Shares To Be Issued: Extreme Profits

Following up on yesterday's post on huge number of Citibank puts, today C announced a new share offering at $3.15/share. The stock plummeted promptly to $3.20 in after-market hours:

Obviously somebody knew something and was buying those puts, and will have extreme profits. Perhaps Abu Dhabi Investments? ;-) My Jan 2,.50 puts bought at $0.02 doubled in price today, tomorrow promises to be another great day.

The number of puts continues to be staggering (3.1M), but interestingly, today there were more Jan calls traded than puts (227k vs 107k). This included 198k Jan 4 calls. Very interesting. This is why straddles are so useful. Tomorrow the intent is to sell some of the puts and increase the number of calls with the profits.



The news released today (Reuters):

"Citigroup Inc. announced the pricing of 5.4 billion common shares and 35 million tangible equity units as part of its agreement with the U.S. government and its regulators to repay U.S. taxpayers for the $20 billion the government holds in TARP trust preferred securities and to terminate the loss-sharing agreement with the government. The common stock priced at $3.15 per share, generating net proceeds of approximately $17 billion. The tangible equity units priced at $100 each, generating net proceeds of approximately $3.5 billion (about $2.8 billion counted as equity.) Upon completion of the offerings and the repayment of the $20 billion of the TARP trust preferred securities and the termination of the loss-sharing agreement, Citi will no longer be deemed to be a recipient of exceptional financial assistance under TARP. The U.S. Treasury (UST) announced it would extend its lock-up period on the sale of its 7.7 billion share common equity stake to 90 days from 45 days after the completion of this offering. The UST decided not to sell any of its shares in connection with Citi`s sale of common stock and tangible equity units. The tangible equity units are comprised of a prepaid stock purchase contract and junior subordinated amortizing note. Each stock purchase contract has settlement date of December 22, 2012 and will settle for between 889 million and 1.1 billion shares of Citi common stock, subject to adjustment as described in final prospectus relating to the offering. "

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