Yesterday, the U.S. Treasury Department announced the completion of its sale of 1.5 billion shares or 19.5% of its total holdings in Citigroup Inc. (C) for gross proceeds of around $6.2 billion. The trading plan, announced on April 26, had Morgan Stanley (MS) acting as the sales agent.

The Treasury also plans to sell another 1.5 billion shares as it continues to wind down its holding in Citi. While the shares were received by the Treasury as part of its efforts to rescue Citi through the Troubled Asset Relief Program (TARP), the Treasury is now looking for the appropriate time and market conditions for selling its stake in Citi to maximize profits from its investment in the company.

Citi, one of the companies severely hurt during the credit crisis, had received $45 billion in bailout funds in 2008 through TARP. Later, in 2009, around $25 billion of that was converted into common stock, resulting in the Treasury receiving 7.7 billion shares or 27% in Citi stake at a price of $3.25 per common share. The company repaid the remaining $20 billion in December 2009.

The Treasury currently holds around 6.2 billion shares or 22% stake in Citi. It has also entered into a second pre-arranged written trading plan following which Morgan Stanley, its sales agent, will have the discretionary authority to sell another 1.5 billion shares under certain parameters.

However, the Treasury would not sell these shares during the blackout period of Citi that is expected to start on July 1 prior to its second quarter earnings release. As such, the plan will terminate on June 30 even if all shares have not been sold by that time.

Citi has been progressing well on its path to recovery. The company’s first quarter results were well above expectations, driven by strong trading revenues coupled with an improvement in loan loss provisions. Besides, the company achieved a reduction in expenses. Citi’s restructuring efforts are appreciable as well.

The repayment of the TARP money also freed the company from significant government interventions in its affairs, particularly related to executives’ pay packages. However, the uncertainty of the economic recovery and the high level of unemployment are expected to be a drag on its earnings in the upcoming quarters.
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