The Home Front

Uncle Sam announced plans Friday to toss yet another lifeline to Citigroup by converting its preferred shares to common stock, a move that allows the struggling financial behemoth to boost a key capital ratio and hopefully reassure skittish investors. Under the plan, the Treasury Department would swap up to $25 billion of preferred stock as long as other big Citigroup investors do the same. Should the deal go through, the government would own as much as 36 percent of Citigroup's common stock.

Here are five things you need to know about the development:

1. Tangible Common Equity: Citigroup's share price has been hammered of late amid concern that the company doesn't have enough capital to absorb its massive losses. Investors have grown particularly concerned about a specific bucket of capital--know as tangible common equity--that does not reflect the $45 billion that the government has pumped into the company. By converting these preferred shares into common shares, the government is enabling the company to boost this key buffer against losses. Assuming that other big investors go along with the plan, Citigroup's tangible common equity could increase to as much as $81 billion, up from just under $30 billion in the fourth quarter. "This securities exchange has one goal: to increase our tangible common equity," Citigroup CEO Vikram Pandit said in a statement.

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The Federal Deposit Insurance Corp. on Thursday reported that the nation's banking industry suffered its first quarterly loss in nearly two decades during the last three months of 2008.

Here are the ugly details:

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported a net loss of $26.2 billion in the fourth quarter of 2008, a decline of $27.8 billion from the $575 million that the industry earned in the fourth quarter of 2007 and the first quarterly loss since 1990. Rising loan-loss provisions, losses from trading activities and goodwill write-downs all contributed to the quarterly net loss as banks continue to repair their balance sheets in order to return to profitability in future periods.

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Another nasty batch of housing figures came out Thursday: the government reported that new home sales hit a record low in January, falling 10 percent from December and nearly 50 percent from a year earlier.

Here's what Ian Shepherdson, chief US economist at High Frequency Economics, had to say about the numbers in a report of his own:

We thought December's rise in mortgage applications and the upt- ick in buyer traffic reported by the NAHB survey might be [reflected] in a modest rise in sales, but alas not. We do think, [though], that sales are now very close to their floor. Activity has been compressed from near 1.4M at the peak to just 0.3M, so it can't fall much further; sales will not drop to zero. The [absolute level] of inventory continues to fall, down 29.9% y/y, but because sales are falling even faster the months supply is still rising, up to 13.3 in Jan from 12.2 in Dec. This will keep [prices] falling for the rest of this year at least.

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Here's how Treasury Secretary Timothy Geithner handled the issue of bank nationalization during a recent appearance on The NewsHour with Jim Lehrer. 

JIM LEHRER: All right. Now, back to the banks for a moment. Much has been said and discussed about nationalizing the banks. Fit that word into what we've just been talking about.

TIMOTHY GEITHNER: Jim, I think that's the wrong strategy for the country, and I don't think it's a necessary strategy. What we need to do is to make sure that these institutions have the resources necessary to perform their critical function on an ongoing basis in our economy as a whole, these major banking institutions.

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