U.S. Stock Futures Drop as Treasury Plans Citigroup Stock Swap

By Adria Cimino and Lynn Thomasson

Feb. 27 (Bloomberg) -- U.S. stock futures slid as the government planned to raise its stake in Citigroup Inc. in an attempt to rescue the bank, while investors braced for a report projected to show the economy shrank more than previously estimated last quarter

Citigroup Inc. plunged 51 percent after the U.S. Treasury said it will help the bank raise capital by converting preferred shares into common stock. Exxon Mobil Corp. declined with crude oil prices. Dell Inc. advanced in Germany after reporting profit that topped analysts’ estimates and announcing plans to save an additional $1 billion a year by 2011.

Standard & Poor’s 500 Index futures expiring in March slipped 1.2 percent to 743.2 at 7:58 a.m. in New York. The index has lost 8.9 percent in February amid concern President Barack Obama’s stimulus package won’t be enough to prevent the recession from deepening. Dow Jones Industrial Average futures fell 1.2 percent to 7,095 and Nasdaq-100 Index futures decreased 1 percent to 1,120.5.

“We’re sitting on the fence,” said Jacques Porta, a fund manager at Ofi Patrimoine in Paris, which oversees about $615 million. “On one hand we have some good news and on the other hand economic data is confirming a significant recession.”

U.S. stocks yesterday dropped for a second day as concern health-care profits will be hurt by a White House overhaul of the medical system offset a rally in banks spurred by the administration’s request for more financial-rescue funds.

The economy shrank in the fourth quarter at an even faster pace than previously estimated as companies trimmed inventories and exports sank, economists said before a government report set for 8:30 a.m. in Washington. Gross domestic product contracted at a 5.4 percent annual pace from October through December, according to the median estimate in a Bloomberg survey.

Exxon, Citigroup

Other reports are projected to show businesses contracted this month at the fastest pace in 27 years and consumer sentiment declined.

Citigroup sank $1.25 to $1.21 in early New York trading. The U.S. government will raise its stake in Citigroup in the third attempt to bail out what was once the world’s biggest financial institution.

The plan will involve the Treasury Department converting as much as $25 billion of preferred shares into common stock, the Treasury Department said today. The government said it will make the swaps only if private holders agree to the same terms. The U.S. doesn’t immediately intend to inject additional money after channeling $45 billion to the New York-based company last year.

Financial companies may fall to 7 percent of the S&P 500 before losses in bank stocks end, extending a drop that already cut the weighting in half, say analysts including Mary Ann Bartels of Bank of America Corp. and John Roque of Natixis Bleichroeder Inc., who base predictions on price charts.

Exxon, Dell

Exxon, the largest oil company, lost 0.6 percent to $70.50 in Germany. Crude fell in New York, paring this week’s increase to 15 percent, on signs the global recession is deepening after Japan’s manufacturers cut production at a record pace.

Dell gained 0.7 percent to $8.27 in Germany. Excluding some costs, earnings were 29 cents a share, beating an average estimate of 27 cents in a Bloomberg survey of analysts. Chief Executive Officer Michael Dell is paring jobs and offloading some manufacturing in a bid to save $4 billion annually within two years, up from an earlier goal of $3 billion.

Profits at the 455 companies in the S&P 500 that have reported quarterly earnings since Jan. 12 dropped 35 percent on average, according to Bloomberg data.

To contact the reporter on this story: Adria Cimino in Paris at acimino1@bloomberg.net.