The Financial Times reports that the U.S. government "is sitting on a paper profit of almost $11bn on its 34 percent shareholding in Citigroup (NYSE: C), its only direct stake in a large financial institution."
How'd that happen? The Treasury Department converted $25 billion worth of preferred stock into common equity at the end of July. Over the past four weeks, shares of Citi are up a mind-blowing 70%.
According to The Wall Street Journal, it was that conversion that led to the run-up: "Ironically, it is the exchange that made Citi a buy. In short, it solved the bank's chief weakness, a dearth of tangible common equity. Banks lacking TCE are risky stock investments because shareholders stand to be diluted by the capital raises needed to boost equity."
Well, perhaps the bailout was not all that stupid. Lets hope other Gov. investments turn out that well.
