Citigroup Wants Feds to Sell off Their Stake in the Company

As the economic recovery kicks off, executives at Citigroup Inc. are working on a strategy to reduce the federal government’s 34-percent stake in the banking giant – a plan that would ultimately turn a profit for the taxpayers who funded the bailout in the first place.
The move follows a summer in which several other major banks, most recently Wells Fargo, have announced plans to return parts or all of the bailout funds they received, expressing unease with continued obligations to the government and the perception that they are wards of the state.

Washington officials confirmed that they’d had weekend talks with Citigroup and said they don’t have a problem with unloading some of their 7.7 billion shares in the New York firm, as long as it is able to raise offsetting capital, the Wall Street Journal reported.

It appears Citibank can provide that capital and then some, according to sources in the company. The current strategy involves an agreement by the government to sell

off some or most of its shares. Washington’s initial purchase of $25 billion in common stock has actually gained value, to the tune of nearly $7 billion. “Given the conversion and what’s happened to the stock price, it is likely that the government would make money on it,” Moshe Orenbuch, an analyst at Credit Suisse Group AG, told Bloomberg Tuesday.

Another strategy being discussed is for Citigroup – the nation’s third-largest bank – to offer several rounds of new public stock and use the proceeds to buy back the government’s shares of preferred stock. If that’s done, the government could make an even bigger profit – and Citibank could pull closer to its ultimate goal of paying back all the $52 billion in bailout aid it took from federal authorities.

News of Citigroup’s plan came on the heels of a major financial speech Monday by President Barack Obama announcement in which he announced that the markets were “beginning to return to normalcy” and federal regulators would scale back their intervention in the financial sector.

“While there continues to be a need for government involvement to stabilize the financial system, that necessity is waning,” the president told listeners on Wall Street.

Richard Parsons, Citigroup’s board chairman, told Bloomberg Television Monday that he had “every confidence that Citi will be able to exit the TARP program, and actually be able to give the American taxpayer a decent return.” He didn’t give a time frame for that exit, however.

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