Money Matters - Simplified

Morgan Stanley to handle sale of Treasury's stake in Citigroup

“We don't want the government making market-timing decisions,” Treasury Secretary Timothy F. Geithner told CNBC.

The Treasury Department announced on Monday that investment banking firm Morgan Stanley will handle the sale of government’s stake in Citigroup Inc. A Treasury spokesperson said that the agreement would be made public later this week.

The Treasury, which has a 27 percent stake in Citigroup, will produce $7 billion in profit if the sale is made immediately. Citi is currently worth $32 billion.

“The Treasury hasn’t made any projections about profits from the sale, which will be an “at-the-market offering,” said Meg Reilly, a spokeswoman for the Treasury.

If the sale materializes, it would be the second-largest stock sale in history. It will also cut down Citi’s share in $700 billion Troubled Assets Relief Program.

Gradual sale better than immediate
However, the Treasury said it would not sell the stake immediately, but slowly in the coming few months. It also said it would like to hold warrants to purchase future shares in the bank, even after the ongoing sale proceedings end.

“We don't want the government making market-timing decisions,” said Treasury Secretary Timothy F. Geithner to CNBC.

“It just points out how far we've come. We don't want to be in the business of owning a share in a private company a day longer than necessary. It's just a sign of how much progress we've made already,” he said.

Anton Schutz, of Mendon Capital Advisors Corp. talked of Treasury’s decision to sell gradually and said that the decision is better for existing shareholders than selling in one large offering.

“Many institutions are sitting on the sidelines, waiting for the big government sale so they could buy it at a discount,” Schutz added.

During the financial crisis, Citigroup received more than $45 billion in federal aid. However, the bank paid on time, even offering the government its common stock.

In September 2009, the Treasury converted $25 billion of Citigroup preferred stock from TARP financing into common shares. Out of the $45 billion, the balance $20 billion was repaid by the bank in December.

Citigroup falls by 3 percent on NYSE
Citigroup stock fell 3 percent in New York Stock Exchange composite trading on Monday. The shares have gained 26 percent this year.

“Selling this thing at $4, the government is going to make a lot of money,” Paul Miller, an analyst at FBR Capital Markets, Virginia.

“If we get to the summer and the stock is down at $3, I think the government will continue to sell as long as the market absorbs it. The government just does not want to own the equity of these companies,” he added.