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U.S. May Exit Citi $7 Billion Richer
MARCH 30, 2010

The U.S. government could earn a profit of more than $7 billion on its investment in Citigroup Inc. under its plan to sell off its $32 billion stake over about six months, people familiar with the matter said.

The government said it hired Morgan Stanley to manage the sale of its 27% holding in the bank, which is one of its last remaining stakes in a Wall Street banking giant. The government would sell 8% to 10% of the shares traded daily, according to people familiar with the plan.

At the current market price, the planned sale to investors would give the government a profit of about $7.19 billion on its original $25 billion investment under the government's Troubled Asset Relief Program.

If that price level holds up, it would be the largest U.S. profit on any such TARP investment, exceeding $4.27 billion on dividends and sale proceeds from preferred stock and warrants in Bank of America Corp., according to Linus Wilson, a finance professor at University of Louisiana at Lafayette.

The Treasury's sale plan applies only to its holding of 7.7 billion common shares. The U.S. also owns $5.3 billion of Citigroup trust-preferred securities and warrants to buy 465.1 million shares. Under the so-called dribble-out plan announced Monday, the government will initially sell the Citi shares steadily in the market rather than try a giant "block" sale at a discount to the market price.

The last big Citigroup sale in December, aimed at repaying a $20 billion government holding of preferred stock, came at a big discount to the market price after several other big bank stock sales, depressing the market price for Citi's stock for two months.

At Citigroup's current market price, the planned sale to investors would give the government a profit of more than $7.19 billion on its original $25 billion investment under the government's Troubled Asset Relief Program. Above, a Citibank branch in San Francisco.
At the time of that sale, the Treasury agreed not to sell its remaining 7.7 billion shares until March 16. The agency has said it planned to sell the stock this year, and the price has recently been surging in anticipation that the overhang of government ownership would be eliminated.

The stock rose last week on reports that the government would avoid a block sale at a discount to the market, according to Jeffrey Harte, an analyst at Sandler O'Neill & Partners LP.

However, the Treasury didn't rule out a block sale later, saying only that the sale would begin under "a pre-arranged written trading plan." Citigroup shares fell 13 cents, or 3.02%, to $4.18 in 4 p.m. trading on the New York Stock Exchange.

Because of its low price and volatile fortunes, Citigroup stock has traded heavily over the past year. Since Dec. 17, it has accounted for 10% or more of NYSE volume on 31 different days. At its recent daily average volume of 500 million shares, the Treasury could sell 50 million shares daily at the 10% target, a pace at which the sale would take about seven months.

The government's possible profit on the Citi stake represents an unexpected windfall from an investment originally designed "to prevent an even worse recession," said Douglas Elliott, an analyst at the Brookings Institution, a Washington, D.C. policy research organization.

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