US Treasury to offload $32bn Citigroup stake
Tuesday 30 March 2010
The US government's $32bn stake in the banking giant Citigroup is back on the block and will be sold into the market over the course of this year, the Treasury Department declared yesterday.
The holding – about 27 per cent of the company – is the result of two taxpayer bailouts when the company teetered on the edge of bankruptcy during the financial panic of 2008.
A previous attempt to sell it had to be abandoned following poor demand from investors. But the Treasury said it had hired Morgan Stanley to manage the sale in a way that maximises profits for the taxpayer. The bank's shares have risen steadily in value in recent months, thanks to the improving economic environment, the profit Citigroup can make from borrowing money at near-zero interest rates and lending at higher rates and the management's progress in restructuring the business.
Morgan Stanley is likely to dribble the stock out on to the market over the course of this year, taking care not to dump too much at any one time in a way that could depress the price.
Citigroup's traders made their own attempt to sell the stake on behalf of the government last December, at the same time as carrying out a massive sale of new shares with which they intended to pay back loans from the Treasury as well.
Although Citigroup managed to raise $20.5bn for itself, its shares fell by one fifth and the government balked at selling its stake at a loss.
At today's prices, the government is sitting on a paper profit of a little over $7bn. Its original investment was a loan of $25bn in October 2008, but that was converted into equity after Citigroup needed a second cash infusion at the end of that year.
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