Citigroups Exchange Offer Harvard Case Solution & Analysis

Citigroup faced significant disasters in early 2009. At the end of 2008, the bank received $ 45 billion in preferred stock from the U.S. government through the Troubled Asset Relief Program (TARP). However, stocks continued to slide in early 2009. In late February, the company announced that it will convert as much as $ 50 billion of preferred shares into common shares at $ 3.25 per share. The case asks students to evaluate the price of preferred shares with respect to the common shares at that time. In case there is a period of considerable uncertainty in global capital markets, as well as traditional sources of arbitrage capital had been exhausted, the apparent underestimation may not be as attractive as it first seems. In B and C cases, students have to decide whether their view the appropriate changes in prices, the apparent underestimation worsens. The final extra point of training is to form synthetic short positions using options markets. "Hide
by Robin Greenwood, James Quinn Source: Harvard Business School 14 pages. Publication Date: July 6, 2009. Prod. #: 210009-PDF-ENG

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