Citigroup Government Bailout Leaves Shareholders with Diluted Ownership

Investors Who Held Stock with Full-Service Brokerage Firm May Recover Losses

The modern era of bank holding company conglomerates was considered by many to have begun with the merger of Citicorp and Travelers Group, in 1998. Sandy Weill, the legendary Chairman and CEO of Citigroup, anticipated the final repeal of the Glass Steagall Act with the enactment of the Gramm-Leach-Bliley Act passed in 1999. Travelers was spun off in 2002, Citigroup opened the door, as the largest financial services conglomerate in the world offering a mix of commercial banking, investment banking, insurance underwriting and brokerage operations throughout the world.

Citigroup’s status as a world leader in financial services came crashing down along with the real estate market. Citigroup leveraged its balance sheet with Collateralized Debt Obligations (CDO) and Mortgage Backed Securities (MBS) which exposed the company to systemic risks which were not properly managed. Citigroup’s capital was eroded from mounting losses to the point of insolvency. First, Citigroup sought access from the capital markets through the issuance of Preferred Stock Series AA, E, F and T. The U.S. Government TARP program invested $25 billion in TARP Series H Preferred Stock issued by Citigroup to infuse needed capital. Citigroup suspended the dividend on the common and preferred shares to conserve their capital base. On February 29, 2009, Citigroup announced an Exchange Program which converted outstanding preferred stock for common stock issued at a conversion price of $3.25 per share. Today, Citigroup’s existing shareholder interests have been diluted by the U.S. Government Bailout.

For many investors, Citigroup stock represented a long term holding acquired through investment, inheritance or as a founding member. These investors held the stock for the dividend which was considered to be a safe and stable source of income. Citigroup investors should consider what recourse is available to recover their investment losses for shares held with a full-service brokerage firm.

Full-Service Brokerage Firms Who Failed to Recommend Risk Management Strategies May be Responsible for Damages

But there may be hope for investors, including heirs of founding members, long-time Citigroup employees and others, who maintained large concentrated stock positions in Citigroup held with financial advisors in full-service brokerage accounts. Full-service brokerage firms are obligated to give, and investors are entitled to rely upon, brokerage firms for competent, suitable investment advice concerning risk management strategies for concentrated stock positions. Brokerage firms are required to supervise the activities in brokerage accounts, losses from concentrated stock positions can be attributed to the failure to adequately supervise the stockbroker and the brokerage account. Recommendations of unsuitable investments and/or maintaining unprotected concentrated stock positions are both causes of action that may be available to investors against their full-service brokerage firm in an individual securities arbitration claim filed with the Financial Industry Regulatory Authority, FINRA.