staff and news service reports
updated 12/7/2010 10:07:52 AM ET 2010-12-07T15:07:52

The government said late Monday it had reached a deal to sell its remaining holdings of Citigroup common stock and would 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.

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"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.

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.

"Citi is pleased that the U.S. Department of the Treasury has finalized plans to exit from its remaining holdings of Citigroup common stock. We are very appreciative of the support provided by the Treasury during the financial crisis," Citigroup spokesman Jon Diat said in a statement.

"This is a milestone for the government and for Citigroup," James Angel, a Georgetown University professor of finance, told The Wall Street Journal. "It signals the company has been fully privatized and that their parole is over."

Linus Wilson, a finance professor at University of Louisiana at Lafayette, told the newspaper the government's sales strategy had been a success. "They took a risk by not selling early or selling too much at once," he said.

The move to sell the remaining shares in one large offering follows last month's successful initial public offering in General Motors Corp, which significantly reduced the government's stake.

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

The Treasury is expected to begin selling off its stake in bailed-out insurer American International Group next year, and it anticipates a profit on the complex series of transactions.

George Ball, chairman and chief executive of boutique money manager Sanders Morris Harris Group, told The Wall Street Journal the Citigroup sell-off marked "a winding down" of the overall bailout. "Subsequent sales of government stock in banks will be much less important, viewed as objects in the rearview mirror rather than important benchmarks," he said.

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Ball added that the bank was now "a simpler and more predictable animal, and that is very important to survivability."

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 of Representatives 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.

TARP to cost $25 billion
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.

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The sale, however, does not completely free Citigroup from the government's clutches. The Treasury also said it would continue to hold warrants to purchase Citigroup shares issued as part of the bailout. These may be repurchased by Citigroup or sold in a separate auction for an additional profit.

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 the warrants.

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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.

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.

The Associated Press and Reuters contributed to this report.

Video: U.S. Cashes in on Citi


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