Days ahead of the release of the bank stress test results, reports have surfaced that Citigroup (NYSE: C) may attempt to raise capital from private investors rather than take more U.S. bailout funds. Such a move could strengthen the firm's equity without giving the government more control.
Although the results of the test haven't been released, it is widely known that Citigroup is considered one of the banks that will need to raise cash to continue (some reports state more than $10 billion).
The Bloomberg report notes that one "likely solution" is for the company to convert $10 billion of privately held securities that could "easily" be added to the pending transaction. Such a move could "bring in another $10 billion of common equity, which could be enough to bring Citi over the threshold."
Technically, shares of Citigroup continue to wallow in the $3 region -- sandwiched between their 10- and 20-week moving averages. As the stock tries to regain some sense of momentum, it will have to parlay any perceived good news into a test of overhead resistance. The good news is that Citigroup raising the capital could indeed be the push that the stock needs.
Nevertheless, the stock has plummeted from a December 2006 high of $57 to its current price. Does this drop present a buying opportunity? Depends on whether or not you believe the government will allow the bank to fail, and if you believe that the bank will be able to raise the needed capital.
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