The Hindu : Business : U.S. Treasury seeks to offload Citi stake

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Wednesday, Mar 31, 2010
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U.S. Treasury seeks to offload Citi stake

Narayan Lakshman

The sale will fetch $7.7-8 billion profit at current market price

WASHINGTON: Amidst signs of better performance by financial services companies, the United States Treasury on Monday announced that it planned to dispose of its 7.7 billion shares (27 per cent stake) in banking major Citigroup. It will sell shares into the market through various means “in an orderly and measured fashion.”

In a statement the Treasury said it would sell off its common stock in Citigroup over the course of 2010 and subject to market conditions. At its most recent closing price the sale would fetch Citigroup anywhere between $7.5 billion and $8 billion in profits to the American taxpayer, a potential political victory for President Obama.

According to reports, the government planned to initiate the sale of its Citigroup assets last year, but when the bank's share price dropped below $3.20 in December it delayed those plans amid fears that it might lose money on the investment. The Treasury received these shares of common stock following a June 2009 Exchange Agreement with Citigroup. The Treasury explained that this agreement provided for the exchange into common shares of the preferred stock that the Treasury purchased in connection with Citigroup's participation in the Capital Purchase Program.

Morgan Stanley has been engaged as the Treasury's capital markets advisor in connection with its Citigroup position. The manner, amount and timing of the stock sales would be “dependent upon a number of factors,” the Treasury statement noted. However this planned disposition of common stock would not affect the Treasury's holdings of Citigroup trust preferred securities or warrants for its common stock. Citigroup, one of the worst hit of high street banks in the U.S., posted more than $100 billion in write-downs over the last two years. Following these catastrophic losses Citigroup received $45 billion in bailout funds via the Troubled Asset Relief Program (TARP). Of this the bank repaid $20 billion last December.

Earlier this month, Vikram Pandit, CEO of Citigroup, said before a Congressional Oversight Panel that “Citi owes a large debt of gratitude to American taxpayers… everything we have been doing is to ensure that Citi never again needs the assistance of the American taxpayer.”

However, he added that as a result of the government's response to the crisis the bank was now “in a far different and much healthier position.”

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