Citi's shareholder dilution crown

(breakingviews.com) -- There's a silver lining for the latest U.S. banks to unveil their stress-test-mandated capital raising plans: despite their troubles, there's another bank that is diluting existing shareholders more.

GMAC and Regions Financial (RF, Fortune 500) are imposing oppressive dilutions on their investors. Regions' shares have taken a pounding, with Fifth Third's (FITB, Fortune 500) dragged down too. But Citigroup (C, Fortune 500) remains the king of shareholder dilution in the banking sector.

That's some feat. After all, Regions may end up almost doubling its current 695 million share count. It may sell as many as 460 million new shares and will add another 112 million by swapping preferred stock into common. Mandatory convertible bonds will add 62.5 million more shares next year.

It looks worse for privately owned GMAC. The mortgage and car loans specialist is probably worth, at best, a third of book value, or around $7 billion. The $7.5 billion in mandatory convertible bonds the Treasury is pumping in have been structured to keep the government's ownership below 50%.

But GMAC still needs to raise another $5.6 billion of common equity or equivalent. Depending on how that's structured, current owners including General Motors and Cerberus may be left with only about a third of the company - less, if analysts who reckon the business is worth just $4 billion are correct.

By comparison, one or two of the banks that had to raise capital hardly made a dent at all: PNC (PNC, Fortune 500) increased its share count by just over 3% and Wells Fargo (WFC, Fortune 500) by less than 10%. Only investor demand made Morgan Stanley add 15% to its count, rather than the 8% or so that was required.

Even some of the more troubled cases look fine and dandy compared with Regions and GMAC. Fifth Third's common equity sale, for example, only diluted existing shareholders down to 85% ownership - though its plan to swap preferred stock for a mix of common stock and cash will send that lower. SunTrust (STI, Fortune 500) and Keycorp (KEY, Fortune 500), which have not yet released terms for swapping preferred to common shares, should be in the same ballpark.

Citigroup, though, stands out. The beleaguered megabank laid the groundwork for increasing its capital base before the stress tests. It will have to more than quadruple its share count from 5.5 billion to 22.9 billion by swapping $53 billion of preferred stock into common equity. That's enough to make most other banks feel relatively virtuous.