According to regulatory filings, Citigroup (NYSE: C) has sold $104.2 million of reverse-convertible notes in two offerings. The securities pay set interest rates that are generally higher than those of corporate bonds. The risk lies in an embedded option that gives the issuer the right to repay investors with shares if the underlying stock plummets. U.S. sales of reverse convertibles, a type of structured notes, fell 36 percent last month to $445.6 million, down from $694.7 million in September, the data show.
According to data compiled by Bloomberg, and a prospectus filed with the U.S. Securities and Exchange Commission, the bank issued $60.7 million of notes linked to the stock price of Wells Fargo & Co., and sold $43.5 million of securities tied to Schlumberger Ltd. The six-month Wells Fargo-linked securities, which were issued Nov. 23, pay 9.5 percent annualized interest; New York- based Citigroup said in a separate prospectus. Investors are at risk of losing money if shares of San Francisco-based Wells Fargo fall more than 20 percent from an initial price of $26.80. With the support of Warren Buffet, and ongoing growth thanks to the Wachovia integration and shrinking loan losses, the investments could be very attractive potentially. The offering is the largest of reverse convertibles in the U.S. since Oct. 25, when Citigroup sold $74.3 million of notes tied to MetLife Inc. The six-month notes tied to Houston- and Paris-based Schlumberger, also sold Nov. 23, pay 8 percent a year, Citigroup said. Principal is at risk if Schlumberger falls more than 20 percent from $75.44.
