In a striking reversal of its attempts to unwind the government’s financial stakes in big banks, the US Treasury Department is backing out of plans to sell its 34 percent stake in Citigroup Inc.
The move came after investors responded tepidly to a massive stock offer by the New York-based bank. Citi said on Wednesday it would sell 5.4 million common shares at a steep discount to raise the cash it needs to repay US$20 billion of the US$45 billion in government support it received to weather the financial crisis.
Citi is the last remaining Wall Street bank in which the government still owns a major stake. The Treasury’s move underscores the Obama administration’s halting progress in drawing back the tens of billions of US dollars it invested to stabilize the banking sector.
In what it called the largest equity offering in history, Citi is selling the common stock at US$3.15 apiece, an 8.7 percent discount on Wednesday’s closing price.
The bank is also selling 35 million tangible equity units, which can be converted into common stock at a later date, for US$100 each.
The government converted US$25 billion of its Citi bailout into a 34 percent equity ownership stake in the bank earlier this year. The government paid US$3.25 a share for its stake, which means it would have lost US$0.10 a share in the offering.
“Based on today’s offering price, [the] Treasury has decided not to participate in the equity offering,” said a department official familiar with the matter, who spoke on condition of anonymity because she wasn’t authorized to discuss it.
Citigroup’s shares dropped US$0.24, or nearly 7 percent, to US$3.21 in after-hours trading after closing at US$3.45.
The discount reflected investors’ continued uncertainty about Citi’s financial strength. Analysts believe the bank has benefited from one-time sales and government subsidies, but may not yet have repaired its balance sheet and returned to profitability.
The Treasury Department agreed to wait 90 days after the completion of the offering to sell any of the 7.7 billion common shares that it owns. The government has said it plans to sell the entire stake next year.
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