Citigroup plans share offering to cut US Treasury's 34pc stake

Citigroup's senior managers are working on a proposal that would allow the US Treasury to sell some of its 34pc equity stake in the bank, reducing its grip on the banking conglomerate and repaying some of the money owed to US taxpayers. By James Quinn, US Business Editor
Published: 7:34PM BST 15 Sep 2009


Citigroup has received a total of $45bn (£27bn) in capital from the US Treasury Photo: Reuters

Citigroup is understood to be eager to assist the US government to sell its stake through a potential share offering later this year.

The sale is likely to come as part of a wider share placing, in which the bank would raise further capital by issuing new shares to the public and institutional investors, at the same time as selling the government's holding. The joint sale would ensure that Citigroup's capital ratios are maintained, likely to be a requirement of the Treasury before it agrees to any sale.
Although it is understood that there have been no in-depth conversations between the Treasury and the bank on the subject, Citigroup is believed to be keen to advance its plan. It is possible a sale could come as soon as early next month.

Citigroup has received a total of $45bn (£27bn) in capital from the US Treasury as well as a $306bn loan-loss guarantee designed to cover 90pc of losses on its most toxic of loans.

The Treasury converted $25bn of its $45bn investment – originally held in preferred shares with warrants attached – into ordinary equity over the summer, giving it a 34pc stake based on the 7.7bn shares it owns, making it the largest single investor in the bank.

Earlier this week Dick Parsons, Citigroup's chairman, upped his commitment to exiting the Troubled Asset Relief Programme, telling Bloomberg Television: "I have every confidence that Citi will be able to exit TARP and actually be able to give the American taxpayer a decent return."

"I can't put a time frame on it, but I'm very confident we'll get there," said Mr Parsons, who has repeatedly stopped short of giving any timescale as to when the US government will be repaid in full.

If the sale were to take place, US taxpayers are likely to reap a substantial profit from their investment in the bank.

The Treasury acquired its Citigroup shares at $3.25 each and yesterday afternoon they were trading at $4.27, having fallen 25 cents on news of the potential sale. As a result, at the current price, the equity investment alone would be worth $7.8bn, not to mention the future value likely to be realised from Citigroup buying back the preferred capital and the attached warrants.

Reducing the government's involvement in Citigroup is a core objective of the bank's senior management team as they attempt to return the bank to long-term profitability after two years of sustained losses as a result of its exposure to the US sub-prime mortgage market and other toxic assets.

Citigroup is currently in negotiations with President Obama's pay tsar, Ken Feinberg, regarding the compensation packages of the bank's 25 best-paid executives. The 25 include commodities trader Andrew Hall, who earned $100m last year, and who remains in talks about what percentage of the total he will receive. Although a reduced government stake would not necessarily end such interference, immediately, it would make it easier for chief executive Vikram Pandit to run the bank the way he would prefer to.

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