Treasury Will Sell Its Citi Stake -- and Reap Billions in Profit


The Treasury Dept. will sell its stake in troubled banking giant Citigroup (C) over the course of the year, it announced today. This sets up the government to make a substantial profit at the bank's current share price.

Treasury says it will sell the 7.7 billion shares of Citigroup common stock it received in June, 2009, in connection to a $45 billion federal bailout. The government paid $25 billion for the stake, or $3.25 a share. At Citi's current share price of around $4.28, Treasury would book a profit of about $8 billion.

"Treasury intends to sell its Citi common shares into the market through various means in an orderly and measured fashion," the department says in a press release. "Treasury intends to initiate its disposition of the common shares pursuant to a pre-arranged written trading plan."

Healthier Capitalization

Treasury, which owns about 27% of the former financial supermarket, says the amount and timing of the sales depend on a number of factors, a common arrangement to maximize profit from the transactions without disrupting the market for the company's stock. The department says it has engaged Morgan Stanley (MS) as its capital markets adviser on its Citigroup position.

Treasury adds that the sales don't affect its holdings of Citigroup trust preferred securities or warrants for its common stock. At the end of 2009, Citi repaid $20 billion of the funds received under the federal government's Troubled Asset Relief Program (TARP).

Earlier this month, Citi CEO Vikram Pandit told a congressional panel the company is now among the best-capitalized banks in the world and deploys far less leverage. He said Citi has cut the size of its balance sheet by half-a-trillion dollars, or 21%, from peak levels in the third quarter of 2007 and substantially reduced its exposure to risky assets.