Shareholders and analysts have reacted angrily to Citigroup's botched $20.5bn (£12.5bn) fundraising, in which poor demand from investors drove the banking giant's share price sharply lower and left the US government unable to sell any of its stake.
Citigroup launched the fundraising in order to pay back $20bn of the $45bn it received from two taxpayer bailouts last year, but was able to find enough buyers only by offering new shares at the discounted price of $3.15. That was far below the level it had expected and had led the US Treasury to hope for.
Amid the recriminations yesterday, traders said Citigroup had misread the markets and mis-timed its efforts. Analysts said that foreign investors remained concerned about Citigroup's riskiest businesses and assets, and they scaled back earnings-per-share forecasts to account for the much higher number of shares that will now be in circulation.
The bank itself defended the outcome, pointing out it had completed the biggest equity fundraising in US history. Citigroup shares stayed low yesterday over concern on the US government's continued involvement in the company. The Treasury invested a second $25bn tranche of bailout funds in Citigroup shares at $3.25 and had planned to sell up to $5bn at the same time as the fundraising, but it refused to sell at a loss. It will still have a 26 per cent stake, giving it an ongoing say in how the company is run, and will gradually sell the stock between March and the end of next year.
Chris Kotowski, an analyst at Oppenheimer & Co, said Citigroup should have allowed the government to sell shares first, before raising new cash to buy out the other $20bn taxpayer loan.
"There would have been plenty of demand for government shares at over $4 per share because it would been a clear step toward a normal ownership structure. As long as that stake persists, there will be a cloud over the stock as shareholders will fear that the company will be run more on Washington logic than on business logic."
The $3.15 offer price was an 11.5 per cent discount to the previous day's close.