Citi explores sale of government stake - State books $10bn in unrealised profit

Citi explores sale of government stake - State books $10bn in unrealised profit
By Francesco Guerrera in New York and Tom Braithwaite in Washington
Copyright The Financial Times Limited 2009
Published: September 15 2009 04:38 | Last updated: September 15 2009 13:19
http://www.ft.com/cms/s/0/c84652ac-a1a2-11de-a88d-00144feabdc0.html


Citigroup has asked its investment bankers to study options to facilitate a sale of the government’s 34 per cent stake in the troubled financial giant.

People close to the situation said Citi’s bankers were looking at ways the company could raise capital through a stock offering as well as enabling the government to sell part of its stake, which was acquired as part of a capital injection to support the bank.

Citi declined to comment and people familiar with the matter said the plans were at an early stage. According to bankers, the US Treasury, which has the final say on when and how the stake is sold, has not yet been contacted.

The US authorities received more than 7bn shares in the troubled financial group at $3.25 each, after converting $25bn of preferred stock into common equity at the end of July. The share exchange boosted Citi’s ratio of tangible common equity to assets, providing it with a greater buffer of loss-absorbing capital.

The stock closed on Monday at $4.52, giving the government a paper profit of about $10bn. Some Wall Street analysts have begun agitating for a sale. “Each penny increase in the stock price produces a $76m unrealised gain,” wrote Glenn Schorr of UBS last month.

Tim Geithner, US Treasury secretary, announced last week that it was time to plan winding down the government’s intervention in the financial sector. A successful stock offering would open the door for private investors to come in and give the government a profitable exit.

But as with the Treasury’s stakes in companies such as General Motors, he is keen to balance the benefit of ceasing intervention with a desire to secure a good return for taxpayers.

Dick Parsons, chairman of Citigroup, and Mr Geithner were both in New York on Monday to watch President Barack Obama use the anniversary of Lehman Brothers’ collapse to press lawmakers to reform regulation and bankers to rein in bonuses and offer shareholders a “say on pay”.