Citigroup Bailout Math

If I've got this right, the government currently has $25 billion of preferred stock in Citigroup which it's willing to exchange into common stock at $3.25 per share but which for the time being is paying 9% 5% interest, or $2.25 $1.25 billion per year. If the government converts all of that stock, it will receive in return about 7.7 billion shares of Citigroup. That's a lot of shares. But at today's stock price of $1.60 per share, those 7.7 billion shares are worth only $12.3 billion.

What would you rather have, a fixed income of $2.25 billion a year, or stock worth $12.3 billion? If the Treasury issued a bond paying $2.25 $1.25 billion a year, that bond would be worth about $75 $42 billion. Evidently a similar obligation coming from Citigroup is only worth $12 billion. I think we can safely conclude from this that no, Citigroup has not been nationalized.

Update: James Kwak has more detailed arithmetic.

Update 2: Jim Surowiecki emails to point out that this preferred stock is actually paying a coupon of 5%, not 9%. It only starts paying 9% if shareholders vote not to accept the dilution -- and in that event the coupon increases quarterly until it hits 19%!