WASHINGTON: The US Treasury said on Thursday it has earned a gross profit of about US$2bil on sales of about one-third of its common stock holdings in Citigroup Inc as the government ramps up efforts to unwind bailout programmes.
The sales have cut the Treasury’s stake in the bank from nearly 27% to about 17.6%. Citi shares rose briefly in morning trading, before falling about 1.33% to US$3.71 by early afternoon. Most of the banking sector was trading down.
Citigroup investors predicted the company’s stock may rally briefly over the next two weeks, as the government pauses in its sales efforts. But the general overhang on Citigroup stock would remain until the Treasury sold the rest of its stake, they said.
Pressure on Citi shares would ease when “you get rid of the government ownership, which is huge,” said Bill Smith, chief executive at Smith Asset Management. Until then, “it’s hard when you have this amount of natural pressure that’s on the shares. Plus the market’s trading terribly.”
The government is unwinding stakes it acquired in Citi, General Motors Co (GM), American International Group (AIG) and Chrysler Group after hundreds of billions of dollars in bailouts in 2008 and 2009.
The Treasury, which owns 60.8% of GM stock as a result of its US$50bil bailout last year, hopes to sell about 20% of its holdings as part of the vehicle maker’s initial public offering. That figure could change, according to sources with knowledge of the preparations.
The AIG exit hit a setback recently when a deal to sell its Asian life insurance unit for US$35.5bil to Britain’s Prudential Plc collapsed. AIG is now considering an IPO for American International Assurance (AIA) to help pay back taxpayers.
The Treasury could utilise open-market sales similar to its Citi programme once GM and AIA have established market values.
The Treasury said on Thursday it took in gross proceeds of about US$10.5bil from the sale of 2.6 billion Citigroup shares under a written trading plan.
It said that after selling its second tranche of common stock acquired after bailing out the banking giant, it still held about 5.1 billion shares.
Linus Wilson, an assistant professor of finance at the University of Louisiana at Lafayette, raised concerns about the Treasury’s ability to fully unload its stake in Citigroup this year. He estimated a roughly 55% chance the Treasury would not finish selling its remaining shares by the plan’s Dec 14 completion deadline.
“They’re going to either have to sell some of those shares at a loss below US$3.25 per share, or they’re going to have to get an extension from Citigroup,” he said.
Another challenge comes from the generally slower market activity during the summer, according to Wilson. “It’s conceivable that if the volumes pick up in the fall, they’re going to pick up the pace, but we still have several summer months to go through,” he said.
Treasury said sales so far in the plan administered by Morgan Stanley averaged US$4.03 a share versus acquisition cost of US$3.25 a share. That would produce a gross profit – before sales costs – of around US$2bil for the stock sold so far. — Reuters
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