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The U.S. Treasury Department said yesterday (Monday) that it plans to sell the government's $7.7 billion stake in Citigroup Inc. (NYSE: C) this year, bringing the bank one step closer to leaving the bailout program.
"Treasury intends to sell its Citigroup common shares into the market through various means in an orderly and measured fashion," the Treasury said in a statement. "The manner, amount and timing of the sales under the plan is dependent upon a number of factors."
The Treasury said it would use a "pre-arranged written trading plan," but did not elaborate further.
The U.S. currently holds a 27% stake in Citi, after pumping $45 billion of Troubled Asset Relief Program (TARP) funds into the bank in late 2008 as declining confidence nearly triggered a run on deposits.
The Treasury in September converted $25 billion of the bailout funds into common shares at a price of $3.25 each. Citigroup was among the last major Wall Street firms to pay back TARP funds when in December it paid back $20 billion. In order to come up with the repayment it was forced to raise capital, which diluted shareholders' equity.
A provision of that payment prevented the Treasury from selling the common shares for 90 days. That lockup expired March 16.
The Treasury said that its planned sale doesn't include trust preferred securities or warrants for Citigroup's common stock held by the Treasury. The government owns $5.3 billion in Citigroup trust preferred securities yielding 8% annually as well as warrants that allow it to buy the bank's stock.
The government acquired the preferred stock from Citigroup through the capital purchase program as part of TARP, which helped bail out financial firms during the financial crisis
Based on the closing share price of $4.31 on March 26, the Treasury's holding has a market value of $33.2 billion, which would produce a paper profit of $8.2 billion.
Morgan Stanley (NYSE: MS), another bank that participated in the capital purchase program, has been retained by the Treasury as a capital markets adviser in connection with its Citigroup position, according to The Wall Street Journal.
Assistant Treasury secretary Herb Allison, earlier this month indicated that the government would bring the shares to market "as soon as circumstances permit."
Citi's Chief Executive Officer Vikram Pandit said the bank owed a "large debt of gratitude to American taxpayers" at a Congressional hearing at the beginning of March.
In addition to the $20 billion in bailout funds, Pandit said that Citi has so far paid $3 billion in dividends to the government and $5.3 billion in premiums on the asset guarantee program.
News & Related Story Links:
U.S. Treasury Plans to Sell Citigroup Stake in 2010
- Wall Street Journal:
Treasury Sets Plan to Sell Citigroup Stock
- Financial Times:
US Treasury to sell $7.7bn in Citi shares