Citigroup to Sell TruPS After Repaying Bailout Funds

March 9 (Bloomberg) -- Citigroup Inc. plans to sell 30-year trust preferred securities as the bank seeks to bolster capital after repaying bailout funds provided by the U.S. government. Shares rose the most since September.

The fixed-to-floating rate securities may initially yield about 8.875 percent, according to a person familiar with the offering who declined to be identified because terms aren’t set. Citigroup may issue as much as $2 billion and the offering is expected to price tomorrow, another person said.

Citigroup, 27 percent owned by the U.S. government, told investors in January it may issue TruPS this quarter. The New York-based bank recorded a $7.6 billion loss in the fourth quarter after repaying $20 billion of trust preferred securities issued under the Treasury’s Troubled Asset Relief Program, set up in late 2008 to support financial firms and markets.

“It’s a capital structure need,” said David Hendler, head of U.S. financial services research at CreditSights Inc. in New York. “It’s not as dilutive like common equity issuance and they’ve already done a ton of that. Part of their earnings-per-share problem is they have a ton of shares from all that equity issuance they did last year.”

Citigroup raised more than $80 billion of new capital last year, increasing the number of shares outstanding during the last three years by sixfold to almost 30 billion. The bank’s book value per share -- its net worth, divided by total shares outstanding -- tumbled to $5.35 as of Dec. 31 from $24.18 at the end of 2006.

Citigroup shares rose 25 cents, or 7 percent, to $3.81 as of 2:13 p.m. in New York Stock Exchange composite trading, the largest increase today among the 24 members of the KBW Bank Index.

Citigroup is the sole bookrunner on the sale, the company said today in a prospectus filed with the U.S. Securities and Exchange Commission. The filing didn’t specify the amount of the sale.

“People are looking at Citi more as a stable to hopefully gradually growing entity,” Hendler said.

Citigroup’s $2.35 billion of 8.3 percent fixed-to-floating bonds due in 2057 rose 0.6 cent to 95.7 cents on the dollar, as of 11:50 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The hybrid debt has more than tripled in price in the last year from 30.5 cents, Trace data show.