Treasury moves closer to selling Citi stake

By David Ellis, CNNMoney.com staff writer


NEW YORK (CNNMoney.com) -- The Treasury Department said Monday it was moving closer to unloading its entire stake in Citigroup, but offered little insight into the timing of the sale.

The U.S. government owns approximately 7.7 billion shares, or about a 27% stake in the New York City-based bank. A Citigroup spokesman declined to comment on the Treasury announcement.

chart_ws_stock_citigroupinc.03(2).png
Citigroup shares have surged since the start of the year as investors have gotten more comfortable about the health of the company.

The government officially acquired a controlling interest in Citigroup after pumping $45 billion into the banking giant in the months following the collapse of Lehman Brothers through the Troubled Asset Relief Program, or TARP.

The government subsequently converted a portion of its preferred shares into common stock last summer, giving Treasury control over as much as a third of Citi's outstanding shares.

The government said Monday it could not provide any information on the timing of the sale of Citi shares, adding only that it would take place this year "in an orderly and measured fashion" and that it would be subject to the health of the market.

Such a sale would likely deliver a return to American taxpayers. Earlier this month, Treasury Assistant Secretary Herb Allison testified before a congressional watchdog group and said that Treasury would be able to sell its interest in Citigroup at a profit.

The sale of Treasury's entire stake at Monday's opening price of $4.38 a share would generate nearly $34 billion. That would lead to a profit of approximately $8.7 billion for the government. The government converted its preferred-share stake into common stock when Citi shares were hovering at $3.25.

The government however, would still control warrants in the company, or rights to purchase shares at a future date. Treasury also said Monday that Morgan Stanley (MS, Fortune 500) would serve as its advisor in the sale of the remaining Citigroup shares it owns.

Although Citigroup (C, Fortune 500) stock fell nearly 2% in Monday morning trading, the Treasury announcement was cheered by some on Wall Street. Matt Albrecht of Standard & Poor's boosted his rating of the company's stock to "buy" from "hold", adding that the government could unload its massive stake without placing "undue pressure on the share price."

Citigroup shares have enjoyed a nice rally so far in 2010, gaining more than 25%.

There appears to be a growing sense that the worst is over for the once-embattled bank. Citi reported a decline in credit losses in the fourth quarter of 2009 and set aside less money for bad loans.

Upbeat remarks from Citigroup CEO Vikram Pandit have not hurt either. At a company-sponsored conference earlier this month, Pandit suggested that the firm's Citicorp division, which oversees its investment bank and consumer banking businesses, had the potential to soon deliver profits of $20 billion.

Citigroup will provide the latest update on its performance when it delivers its first-quarter results next month. Analysts currently expect the company to report a profit of just $180 million, according to Thomson Reuters.  To top of page

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Index Last Change % Change
Dow 17,804.80 26.65 0.15%
Nasdaq 4,765.38 16.98 0.36%
S&P 500 2,070.65 9.42 0.46%
Treasuries 2.18 -0.03 -1.27%
Data as of 12:34am ET
Company Price Change % Change
Bank of America Corp... 17.62 0.09 0.51%
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Microsoft Corp 47.66 0.14 0.29%
Data as of Dec 19

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