Citigroup’s Exchange Offer Case Solution & Answer

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This Case is about FINANCIAL MANAGEMENT, FINANCIAL MARKETS, INTERNATIONAL BUSINESS

PUBLICATION DATE: July 06, 2009 PRODUCT #: 210009-HCB-ENG

Citigroup faced significant misery in early 2009. In the late 2008, the bank had consented $45 billion in preferred equity from United States government via the Distressed Assets Relief Plan (TARP). The stock had continued to fall in early 2009. The case asks students to review the pricing of preferred stock currently. Traditional sources of arbitrage capital have been depleted, and as the instance occurs during a period of significant indecision in international capital markets, the apparent mispricing may not be as appealing as it appear. In the B and C cases, pupils must determine whether their view of the pricing that is proper changes, when the clear mispricing worsens. A closing added teaching point links to the creation of a synthetic short position.