Treasury To Sell Citi Stake

Yesterday, the U.S. Treasury said that it plans to begin selling its stake in Citigroup Inc.  The sale of 7.7 billion shares or 27% of Citi's common stock that the Treasury holds, would take place throughout 2010 and would be based on a pre-arranged trading plan. 

The Treasury would, however, continue to hold warrants for future purchases of Citi's shares following the stake sale. Morgan Stanley  will help the government on this issue. 

The Treasury had initially planned to sell its Citi stake in December last year when the company offered new shares and repaid the bailout money. However, it postponed its plan after a lackadaisical approach of investors following Citi's stock offering. 

At that time, Citi had to sell the shares at a discounted price of $3.15 a share. This was 10 cents below the price that the Treasury had paid to buy the shares earlier. However, at the current price, the Treasury is expected to make a profit of over $7 billion. 

Citi, one of the severely hurt companies during the credit crisis, received $45 billion in bailout funds in 2008 through the Troubled Asset Relief Program (TARP). Later, in 2009, around $25 billion of that was converted into common stock, representing nearly 34% of its stake held by taxpayers. 

On Dec 23, 2009, Citigroup repaid $20 billion of trust preferred securities held by the U.S. Treasury under the U.S. government's TARP. The company also exited from the loss-sharing agreement, which covered a specified pool of assets, with the U.S. Treasury, Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve Bank of New York. 

In connection with the exit from the loss-sharing agreement, $1.8 billion of the approximately $7.1 billion of additional trust preferred securities held by the U.S. Treasury and FDIC were cancelled. 

Citi raised capital to fund the repayment of the bailout money through capital raise. The company raised $17 billion through stock offering and $3.5 billion through debt offering. Following these transactions, the Treasury continues to hold approximately 27% of Citi's common stock, which the company is now planning to sell off. 

Following the stake sale announcement, Citi shares decreased 13 cents or 3.02% to $4.18 in Monday's regular session on the New York Stock Exchange. The shares were further down 3 cents or 0.72% in the after-market session.