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U.S. Ends Citigroup Investment With $10.5 Billion Stake Sale

The U.S. Treasury Department sold its remaining stock in Citigroup Inc. for $10.5 billion, bringing the country’s third-biggest bank a step closer to independence from the government following a $45 billion bailout in 2008.

The Treasury said it disposed of 2.4 billion shares at $4.35 each, compared with yesterday’s closing price of $4.45 on the New York Stock Exchange.

The sale helps Citigroup exit the 2008 bailout, which was provided to keep the New York-based bank from collapsing as its stock sank below $5 and some depositors started withdrawing their money. Citigroup also had to get $301 billion of government guarantees on its riskiest assets, making the bailout the biggest among U.S. banks.

“We’re seeing a form of governmental handcuffs being released,” Bill Bradway, founder of banking consultant Bradway Research LLC in Framingham, Massachusetts, said before the announcement. “Citi will be basically disentangling itself from direct ownership from the government, and the government is cashing out.”

Citigroup shares have rallied 34 percent this year, while they remain down about 92 percent from their December 2006 high of $56.41. Bank of America Corp., the biggest U.S. bank by assets, has declined 23 percent this year while JPMorgan Chase & Co., the second-biggest, fell about 4 percent.

‘Substantial Profits’

“We had an opportunity to lock in substantial profits for the taxpayer and avoid future risk,” Tim Massad, acting assistant secretary for financial stability, said in the government statement.

The Treasury said its average price for selling 7.7 billion Citigroup shares was $4.14. Because the government acquired the shares at a conversion price of $3.25, profit for the taxpayer is about $6.85 billion.

The government has been winding down bank-bailout and emergency-lending programs while trying to recoup the money it provided to bolster private companies including General Motors Co. and American International Group Inc.

The Treasury received $13.6 billion from last month’s initial public stock offering by Detroit-based General Motors, and still holds about 33 percent of the automaker. The government said in September it plans to convert $49.1 billion of AIG preferred shares into common stock that would eventually be sold in the open market.

Government’s Stake

The government stake in Citigroup came from converting $25 billion of bailout money last year into common stock at $3.25 a share. The 7.7 billion shares equated to a 27 percent stake.

“Citi is pleased that the U.S. Department of the Treasury has finalized plans to exit from its remaining holdings of Citigroup common stock,” Jon Diat, a spokesman for the New York-based bank, said in an earlier e-mailed statement. “We are very appreciative of the support provided by the UST during the financial crisis.”

The Treasury still owns warrants on 465.1 million Citigroup shares, and the Federal Deposit Insurance Corp. holds $800 million of the bank’s trust-preferred securities on behalf of the Treasury, according to a regulatory filing.

In October, the Treasury sold another $2.2 billion of the trust preferreds, which Citigroup had delivered to the government as compensation for the asset guarantees. The bank also paid about $3 billion of dividends to the government on its preferred shares.

Shares Outstanding

Because of the new stock Citigroup issued to raise capital and satisfy the government, the number of shares outstanding ballooned to about 29 billion from about 5.5 billion, diluting shareholders by more than 80 percent.

This week’s offering may help lure back investors who were worried that the stock might be pressured by the Treasury’s sales or leery of investing alongside the government, said Gary Townsend, president of the investment firm Hill-Townsend Capital LLC in Chevy Chase, Maryland.

“This now puts the shares into hands that are not obviously committed to selling them, so this removes an overhang,” Townsend said. “And of course, no one really wants the U.S. Treasury as one of its principal partners.”

The offering is a milestone for Citigroup Chief Executive Officer Vikram Pandit, who told Congress in February 2009 that taxpayers were right to expect a return on their investment. He pledged to take a $1 salary until Citi returned to profit.

Profit Expected

Citigroup may post an $11.7 billion profit this year, the average estimate of 16 analysts surveyed by Bloomberg. That’s after two straight years of losses totaling $29 billion.

Citigroup isn’t likely to see an immediate reprieve from regulatory oversight that followed the bailouts, said Nancy Bush, an independent bank analyst based in Annandale, New Jersey.

“These companies are going to get a level of scrutiny from the government that will continue to be extraordinary,” Bush said. “Treasury and the Federal Reserve and everybody else, they’re not going to go through this again.”