Government may sell some Citigroup shares

Several media reports say that Citigroup (C) is trying to find a way for the U.S. government to sell part of its 34 percent ownership in the bank.

The big financial company may have to raise money to pay the Treasury Department back. The Wall Street Journal reports that "Citigroup would issue as much as $5 billion in new shares, while the government would simultaneously sell an undetermined amount of the stock it is holding, the people said."

Depending on the price at which the government could move out of Citi, its profit could be several billion dollars.

The government should get out while the getting is good, even if there is a modest chance that Citi's shares could go higher over the next year. The financial firm still faces write-offs in its consumer credit portfolio and commercial real estate mortgage business. Citi also carries toxic assets on its balance sheet that have never been sold. In other words, Citi's stock may not have a bright future.

The interesting legal question is whether the Treasury has "inside information" about Citi that would prevent it from selling some of its stock. While that potential problem has not been raised, the government has had a look at Citi's books, a look that is not available to other public shareholders. If the Treasury sells shares and Citi does badly in the future, it brings up the question of whether the Treasury got out because of concerns about the bank's future.

One the other hand, the government's knowledge of Citi's finances may cause it to keep its holding to prop up the firm. In that case, taxpayers would be left holding the bag if Citi's shares sell off again.

In a nutshell, the government has a conflict of interest whether it sells or keeps its shares in the big bank. And, it is one that cannot be easily resolved.

Douglas A. McIntyre is an editor at 24/7 Wall St.

Read Full Story
  • DJI26135.79249.780.96%
  • NIKKEI 22520677.22114.060.55%
    Hang Seng26236.37-55.47-0.21%
  • USD (PER EUR)1.11-0.0001-0.01%
    USD (PER CHF)1.020.00170.17%
    JPY (PER USD)106.43-0.1700-0.16%
    GBP (PER USD)1.21-0.0033-0.27%