Gov't Announces $12B Profit on Citigroup

The government said late Monday it had reached a deal to sell its remaining holdings of Citigroup common stock and will end up turning a profit of $12 billion on its bailout of the giant bank.

The Treasury Department said that a final offering of about 2.4 billion shares of Citigroup Inc. common stock had been priced at $4.35 per share. With the proceeds of the sale, the government will have realized $57 billion on its bailout package for the big bank.

Citigroup received $45 billion in taxpayer support late in 2008 in one of the largest bank rescues as the government struggled to contain the worst financial crisis to hit the country since the 1930s.

The bailout of Citigroup and other large banks was begun under the Republican administration of George W. Bush but turned into a major political liability for President Barack Obama in last month's congressional elections.

Republicans took control of the House and gained six seats in the Senate by capitalizing on voter anger over the bailouts and soaring federal budget deficits.

The administration has insisted that the bailouts were needed to prevent an even deeper recession. They said the cost of the bailouts has been falling as Citigroup and other rescued institutions pay back their government loans.

The latest estimate from the Congressional Budget Office in late November was that the $700 billion Troubled Asset Relief Program would end up costing the government $25 billion, down from an August CBO estimate of $66 billion.

Of the $45 billion in taxpayer support provided to Citigroup, $25 billion was converted to a government ownership stake that the Treasury has been selling off since last spring. The bank repaid the other $20 billion in December 2009.

Treasury said that with the pricing of the last 2.4 billion shares of common stock on Monday, it would receive $31.8 billion from the sale of common stock plus another $2.9 billion in interest and dividends.

The $57 billion total also includes $20 billion from Citigroup's December 2009 repayment of TARP money and another $2.2 billion from the sale of trust preferred securities held by the government.

The actual earnings are expected to climb with the sale of an additional $800 million in trust preferred securities held by the Federal Deposit Insurance Corp. and the sale of warrants Treasury holds. The warrants give the holder the right to buy Citigroup common stock at a specified price.

"By selling all the remaining Citigroup shares today, we had an opportunity to lock in substantial profits for the taxpayer and avoid future risk," said Tim Massad, the Treasury official who heads up the bailout program.

"With this transaction, we have advanced our goals of recovering TARP funds, protecting the taxpayer and getting the government out of the business of owning stakes in private companies," Massad said in a statement.

Treasury had disposed of about 5.3 billion shares at an average price of $4.05 before Monday's pricing of the remaining shares. With the pricing of $4.35 for the shares offered on Monday, Treasury's average price for its entire 7.7 billion shares of common stock will turn out to be $4.14.

Monday's deal, for which Morgan Stanley acted as bookrunning manager, is expected to close on Friday, Treasury said. Citigroup is paying the underwriting fees.

"Selling off the remaining stake ensures that taxpayers will book a healthy profit on the Citigroup investment," said Linus Wilson, a professor of finance at the University of Louisiana at Lafayette.

Citigroup common stock closed at $4.45 in trading Monday and has ranged from a low of $3.11 to a high of $5.07 over the past 52 weeks.

Last week, Treasury announced it had received an additional $1.8 billion in net proceeds from the sale of General Motors stock, bringing the total it has received from an initial public offering of GM stock to $13.5 billion. The government put $49.5 billion into GM as part of its bailout of the giant automaker.