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Uncle Sam books $1B profit from Citi sale

Treasury reaps handsome profit from sale of 1.5B shares; stake now down to 12%

The U.S. Treasury Department earned a $1.02 billion profit for taxpayers from the sale of a 5 percent stake in Citigroup Inc. during the past nine weeks as markets slowed and the bank’s share price fell.

The Treasury sold 1.5 billion shares since July 26 for $5.9 billion, it said yesterday in a statement. That equals an average price of $3.93 a share, more than the $3.25 taxpayers paid for a stake in the New York-based bank during the financial crisis of 2008. The sales were handled by Morgan Stanley.

Treasury’s stake in Citigroup, the fourth-biggest U.S. bank by deposits, fell to 3.6 billion shares, or about 12 percent. The stake is worth about $14 billion. The department, headed by Treasury Secretary Timothy Geithner, sold shares at a rate of 31 million a day, less than half the pace it needs to meet its goal of exiting the bank by the end of this year.

“I don’t think that’s good from Treasury’s point of view and I don’t think that’s good from Citigroup’s point of view,” Linus Wilson, a finance professor at the University of Louisiana, said in a telephone interview. “The longer the sale takes, the more chances that Treasury is going to have to sell some shares at a loss.”

U.S. taxpayers received Citigroup shares in the bank’s $45 billion bailout in 2008. Citigroup repaid $20 billion and the department converted the remaining $25 billion into a 27 percent stake. Treasury has been selling shares since April this year.

Return for Taxpayers

“We are pleased that U.S. Treasury continues to make progress in profitably selling its securities in Citi, adding to the substantial return for taxpayers realized last year when we repaid the December 2008 TARP investment,” said Jon Diat, a Citigroup spokesman. “We continue to be very appreciative of the support provided by the U.S. Treasury during the financial crisis.”

Treasury sold 1.1 billion shares at 46 million a day from May 27 through June 30. From April 26 through May 26, Treasury sold 1.5 billion shares, or about 65 million a day. To dispose of its stake by the department’s goal of Dec. 14 or by the end of the year, Treasury must sell at a rate of 76 million to 100 million shares a day, Wilson said.

“It is unlikely,” Wilson said in an e-mail. “We should expect the share sale should extend into 2011 if an underwritten secondary offering is not employed to speed the taxpayers’ exit.”

Citigroup’s share price has declined 5.8 percent since July 26, during the most recent trading period, compared with a 2.4 percent gain for the Standard & Poor’s 500 Index.

Treasury also announced plans this week to sell about $2.2 billion in trust preferred securities, or TruPS, that it received as compensation for guaranteeing Citigroup assets. The sale may be complete Oct. 5, Treasury said yesterday.