In an effort to wind down its position in Citigroup Inc. (C), the U.S. Treasury has announced its plan to continue selling off its Citi stake. The Treasury will sell 1.5 billion shares of Citi, with Morgan Stanley (MS) as its sales agent.
The Department of Treasury had received these shares as part of its efforts to rescue Citi from the murky waters of the recession. Citi, one of the companies severely hurt during the credit crisis, had received $45 billion in bailout funds in 2008 through the Troubled Asset Relief Program (TARP). In 2009, around $25 billion of that was converted into common stock, resulting in the Treasury receiving 7.7 billion shares — a 27% stake in Citi — at a price of $3.25 per common share. Citi repaid the remaining $20 billion in December 2009.
Earlier Trading Plans
In the first phase, the Treasury sold 1.5 billion shares shares in Citi for gross proceeds of around $6.2 billion. The trading plan was announced in April 26 and was closed in May. In its second phase, the Treasury sold 1.1 billion shares of Citi. The sale closed in July 2010.
The Treasury has so far sold around 2.6 billion shares of Citi at an average price of $4.03. This has generated gross proceeds of about $10.5 billion.
Third Plan
Following the two stake sales, the Treasury currently holds around 5.1 billion shares or 17.5% stake in Citi. The Treasury plans to wrap up the sale by this year end. Even if all the shares have not been sold, the third trading plan will end on September 30 prior to the onset of the blackout period of Citi before its third quarter earnings release. The blackout period is expected to begin on October 1.
Quarterly Performance
Citi has reported second quarter earnings of 9 cents per share, ahead of the Zacks Consensus Estimate of 5 cents. However, the results were below the prior quarter earnings of 14 cents and the year-ago quarter’s earnings of 51 cents.
Results reflect an improvement in the credit quality and lower loan loss provisions. However, as expected, the market declines negatively impacted the revenues from its trading business in the quarter.
The share price of Citi decreased 1.71% to $4.02 during Friday’s regular session on the New York Stock Exchange. We expect the Treasury’s stake sale activities to add volatility to its share price.
Citi is currently rated as Zacks #3 Rank (Hold), implying no clear directional pressure on the stock over the next one to three months. The stock has a long-term Neutral recommendation from us.
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Read the full analyst report on “MS”
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