Citi to exchange extra $5.5 bln preferred for common stock

NEW YORK (Reuters) - Citigroup said on Thursday it is looking to exchange an additional $5.5 billion (3.7 billion pounds) of preferred securities for common stock to fill its capital shortfall after the U.S. government stress test.

The exchange is in addition to a roughly $52.5 billion exchange announced in February, which is designed to boost the bank's tangible common equity base, a measure of the capital the bank would be able to rely on in difficult times.

According to the stress test, under the most adverse scenario that the government considered, Citigroup would suffer losses of about $105 billion. After accounting for factors ranging from expected revenue, and the previously announced preferred exchange, the U.S. found that the bank needed to boost common equity by about $5.5 billion.

U.S. regulators told top banks on Thursday to boost their common equity by $74.6 billion to build a capital cushion. The bank reviews, led by the Federal Reserve, showed 10 banks needed additional capital to withstand heavier losses that would likely come if the recession worsened.

Citigroup Chief Executive Vikram Pandit said in a statement that the bank's actions will "give it the financial strength to weather an adverse stress scenario".

Assuming every private investor converts their preferred shares in the newly expanded exchange offer, the U.S. government would own about 34 percent of Citi's outstanding common stock, down from a prior level of about 36 percent. Existing shareholders would own about 24 percent of the outstanding common shares.

(Editing by Tim Dobbyn, Bernard Orr)