US Treasury cuts Citi stake at $2B gross profit

By Reuters
Posted July 1, 2010 at 11:00 a.m.

The U.S. Treasury Department said on Thursday it has earned a gross profit of about $2 billion so far on the sale of about one-third of its common stock holdings in Citigroup Inc. The sales have cut the Treasury’s stake in the bank from nearly 27 percent to about 17.6 percent. Citi shares rose briefly in morning trading, before falling about 2.39 percent to $3.67 by mid-morning. Most of the banking sector was trading down.
Citigroup investors predicted the company’s stock may rally briefly over the next two weeks, as the government pauses in its sales efforts. But the general overhang on Citigroup stock will remain until the Treasury sells the rest of its stake, they said.

Pressure on Citi shares will ease when “you get rid of the government ownership, which is huge,” said Bill Smith, Chief Executive at Smith Asset Management. Until then, “it’s hard when you have this amount of natural pressure that’s on the shares. Plus the market’s trading terribly.”

The government is ramping up its efforts to unwind stakes it acquired in Citi, General Motors Co 1/8 GM.UL 3/8 , American International Group AIG.N and Chrysler Group after hundreds of billions of dollars in bailouts in 2008 and 2009.

The Treasury, which owns 60.8 percent of GM stock as a result of its $50 billion bailout last year, hopes to sell about 20 percent of its holdings as part of the automaker’s initial public offering, though that figure could change, according to sources with knowledge of the preparations.

The AIG exit hit a setback recently when a deal to sell its Asian life insurance unit for $35.5 billion to Britain’s Prudential PLC PRU.L collapsed. AIG is now considering an IPO for American International Assurance to help pay back taxpayers.

The Treasury could utilize open-market sales similar to its Citi program once GM and AIA have established market values.


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