U.S. Government Will Begin Selling the 7.7 Billion Shares of Citigroup It Received in Exchange for $25 Billion It Gave the Bank from the Public Treasury

Treasury Says It Will Begin Selling Citi Shares

March 29, 2010

Reuters – The Treasury Department said Monday it will begin selling the stake it owns in Citigroup Inc., which could result in a profit to the government of about $7.5 billion.

The government received 7.7 billion shares of Citigroup in exchange for $25 billion it gave the bank during the 2008 credit crisis [the Treasury paid $3.25 a share for its $25 million stake]. It said it will sell the shares over the course of this year, depending on market conditions. Like any investor, the government will likely hold on to its shares if prices fall steeply. However, Citi shares have steadily been rising with the broader market in recent months, which means the Treasury Department stands to pocket a hefty profit.

The government has been trying to unravel the investments it made in banks under the $700 billion Troubled Asset Relief Program, or TARP, that came in at the height of the financial crisis. Citi, one of the hardest hit banks during the credit crisis and recession, received a total of $45 billion in bailout money, one of the largest rescues in the program.

Of the $45 billion, $25 billion was converted to the government's ownership stake in the bank [New York-based Citi repaid the other $20 billion it owed the government in December].

The Treasury had been planing to sell 20 percent of its stock [7.7 billion shares] at the time when Citi was selling new shares late last year. At a price of $3.15 a share, the government would have lost $158.7 million on the sale, so it opted not to participate in the deal at that time but to unload all of its 7.7 billion shares over the course of this year.

Citi shares fell 8 cents to $4.23 in morning trading Monday. The government would make about $7.5 billion in profit on its stake in Citigroup if it sells the stock for that price.

When Citigroup agreed to repay the $20 billion in loans it still owed the Treasury Department, the pair also agreed the Treasury would sell the common stock it owned in the New York bank throughout 2010.

The Treasury owns about 27 percent of Citigroup's outstanding stock, based on the number of shares that were outstanding on Jan. 31.

Even after it sells its stake in Citigroup, the Treasury Department will still hold warrants to purchase future shares in the bank.

The Treasury said Monday that Morgan Stanley will handle the sale of the shares.

Washington Post: Citi Sale “Would Amount to a Validation of Bailout”

March 29, 2010

Washington Post - Among the banks that rule Wall Street, Citigroup got a bailout that was bigger than the rest. Now the company is about to pay a king’s ransom for its federal rescue.

The Obama administration is making final preparations to sell its stake in the New York bank, according to industry and federal sources. At today’s prices, the sale would net more than $8 billion, by far the largest profit returned from any firm that accepted bailout funds, and the transaction would be the second-largest stock sale in history.

On paper, the government’s 27 percent stake has grown in value to $33 billion. The size of the deal in the works has Wall Street buzzing. Only the stock offering by Japan’s Nippon Telegraph and Telephone, which raised $36.8 billion in 1987, was larger, according to Thomson Reuters.

Leading financial firms, including J.P. Morgan Chase, Morgan Stanley and Goldman Sachs, are vying to be chosen as the deal’s underwriters to gain the prestige of managing a historic stock sale as well as the fees from investors who buy the shares. To improve their chances, some banks, such as Goldman Sachs, are offering their services to the Treasury Department at almost no cost, industry officials familiar with the matter said ...