April 21 (Bloomberg) -- Citigroup Inc., after posting almost $16 billion in writedowns, is bolstering capital by selling $6 billion of preferred shares in its biggest public debt offering.

The perpetual hybrid bonds may pay 8.4 percent for 10 years, according to a person who declined to be named because terms aren't set.

``They're putting an attractive coupon on it to get it done,'' said Bill Larkin, a portfolio manager who oversees $475 million of fixed-income assets for Cabot Money Management in Salem, Massachusetts.

Losses on assets tied to subprime mortgages have forced New York-based Citigroup, Merrill Lynch & Co. and other banks to raise more than $160 billion from foreign governments and investors to replenish their balance sheets. Citigroup, which last week posted a $5.11 billion first-quarter loss and cut 9,000 jobs, has raised more than $30 billion in capital since November.

The world's biggest banks are rushing to raise cash after reporting $290 billion in asset writedowns and credit losses since the beginning of last year. Merrill Lynch, the third- biggest securities firm, is marketing at least $300 million of preferred shares at 8.625 percent following its third straight quarterly loss. JPMorgan Chase & Co. raised $6 billion last week by offering 7.9 percent hybrid bonds in the New York-based bank's biggest sale of the securities.

Hybrid Bonds

Hybrid bonds and preferred shares that have characteristics of both debt and equity count toward capital reserves, allowing banks to replenish their coffers without diluting equity. Hybrids typically allow issuers to defer interest payments without defaulting, and credit-rating companies usually consider the bulk of the money raised as equity, meaning only a portion is counted as debt on an issuer's balance sheet.

``It's a way of not upsetting the apple cart,'' Larkin said. ``They don't want to dilute shares, and they don't want to issue more debt.''

Citigroup's Tier I capital ratio, which regulators monitor to assess a bank's ability to absorb loan losses, fell to 7.7 percent at the end of March from 8.8 percent in January. That compares with 8.3 percent at JPMorgan and 7.5 percent at Bank of America Corp. Citigroup says it needs a 7.5 percent ratio to provide a margin of safety and preserve its credit ratings.

Earnings Power

Citigroup, the biggest U.S. bank by assets, in January sold $3.72 billion of perpetual preferred shares at a yield of 8.125 percent and $3.17 billion of convertible securities, according to data compiled by Bloomberg. Citigroup sold $3.5 billion of hybrid bonds in December. The enhanced trust preferred securities pay a fixed rate of 8.3 percent for the first 30 years. If not called, the debt will float at 417 basis points more than the three-month London interbank offered rate, which is currently 2.92 percent.

Citigroup's new hybrids are rated A2, or the sixth-highest investment grade, by Moody's Investors Service and an equivalent A by Standard & Poor's, the person said. If not called after 10 years, the debt will then begin to float.

Citigroup, the biggest U.S. bank by assets, said last week that first-quarter revenue fell 48 percent to $13.2 billion. Results included $7.6 billion of writedowns and credit costs on mortgages and bonds, $1.5 billion on leveraged buyout loans and $1.5 billion on auction-rate securities. Citigroup's writedowns and credit losses from the collapse of the subprime mortgage market now total $40.9 billion, more than those reported by Zurich-based UBS AG and Merrill.

``The company has seriously constrained earnings power,'' Meredith Whitney, an analyst at Oppenheimer & Co. in New York, said today in a report. This may force Citigroup to ``seek additional capital from outside investors.''

Not Happy

Vikram Pandit, Citigroup's chief executive officer, said he was ``not happy'' with the results. He said he's selling assets to free up capital and shedding units outside the company's ``core'' retail banking, trading, investment-banking and transaction-processing businesses.

Since replacing former CEO Charles O. ``Chuck'' Prince five months ago following a record fourth-quarter loss of almost $10 billion, Pandit has cut holdings of subprime-infected collateralized mortgage obligations by 23 percent and pared money-losing leveraged-buyout loans by 35 percent. He's hired seven senior executives to monitor trading risks.

To contact the reporters on this story: Bryan Keogh in New York at bkeogh4@bloomberg.net; Gabrielle Coppola in New York at gcoppola@bloomberg.net

Last Updated: April 21, 2008 16:59 EDT