Government may sell some Citigroup shares
Several media reports say that Citigroup (C) is trying to find a way for the U.S. government to sell part of its 34 percent ownership in the bank.
The big financial company may have to raise money to pay the Treasury Department back. The Wall Street Journal reports that "Citigroup would issue as much as $5 billion in new shares, while the government would simultaneously sell an undetermined amount of the stock it is holding, the people said."
Depending on the price at which the government could move out of Citi, its profit could be several billion dollars.
The government should get out while the getting is good, even if there is a modest chance that Citi's shares could go higher over the next year. The financial firm still faces write-offs in its consumer credit portfolio and commercial real estate mortgage business. Citi also carries toxic assets on its balance sheet that have never been sold. In other words, Citi's stock may not have a bright future.
The interesting legal question is whether the Treasury has "inside information" about Citi that would prevent it from selling some of its stock. While that potential problem has not been raised, the government has had a look at Citi's books, a look that is not available to other public shareholders. If the Treasury sells shares and Citi does badly in the future, it brings up the question of whether the Treasury got out because of concerns about the bank's future.
One the other hand, the government's knowledge of Citi's finances may cause it to keep its holding to prop up the firm. In that case, taxpayers would be left holding the bag if Citi's shares sell off again.
In a nutshell, the government has a conflict of interest whether it sells or keeps its shares in the big bank. And, it is one that cannot be easily resolved.
Douglas A. McIntyre is an editor at 24/7 Wall St.
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Reader Comments (Page 1 of 2)
9-15-2009 @ 7:57AM
Joe Average American said...
Smartest idea of the last fifteen minutes: How bout the Treasury Department issuing stock certificates in the Bank of America in lieu of tax refund dollars up to a maximum of $5000 dollars at the option of the taxpayer filing. It would seem the perfect way to maintain the share price, recoup the money on the books, and give the American public a tangible product to hold for the good faith they have shown.
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9-15-2009 @ 6:01PM
period said...
hell no! you can't fix stupid. and it seems people keep getting stupider by micro second. all my federal taxes are taken and i still owe more. we do not make over 100,000 a year. if ever we get money back we want it in our hands.
9-15-2009 @ 7:58AM
Tom Whitworth said...
Mr. McIntyre raises a very interesting scenerio. This is what happen when Big Government sticks it's hand where it doesn't belong.
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9-15-2009 @ 8:09AM
john said...
so do what insiders do and preannounce a schedule for a sale of stock(2% each month, each year, etc) and couple that with a COMPANY goal to buy additionally and take that from the TAIL end of the schedule, so the total deal gets done sooner as opposed to later. INSIDER trading is only possible if timed around an event(or lack of one), so pre-scheduling rules that out.
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9-15-2009 @ 8:48AM
Irishtrader said...
I just Loooove how AOL completely ignores the HUGE SEC/BAC settlement slapdown by the NY judge. WHERES THE STORY AOL??? Lemme guess. You are cozily in bed with BAC. RUN the story AOL. Quit hiding behind your sponsors and admit- you side with an adulterous BAC. Jerks.
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9-15-2009 @ 8:53AM
john said...
Judge Rejects SEC Deal on BofA Bonuses
posted: 13 HOURS 24 MINUTES AGO
filed under: Financial Crisis
Getty IamgesA federal judge rejected a $33 million settlement between the Securities and Exchange Commission and Bank of America Corp., saying the SEC's accusations of inadequate disclosure by the bank over bonuses paid at Merrill Lynch must now go to trial.
AOL does alot wrong, but the story is there... hope that helps
9-15-2009 @ 10:08AM
ray said...
um, no. the gov't isn't interested in making money. you have to use an entirely separate (altruistic) mindset here. yes, it's shocking but the gov't bailout was supposed to be altruistic. do they really care if they lose OUR money? nope. their sole interest is keeping the system stable. and that CURRENTLY means a solvent Citi. if that wasn't the case (depending on their specific point-of-view-of-the-moment, a la Lehman), THEN it's time to dump Citi shares en masse. but i don't think that's the case.
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9-15-2009 @ 10:03AM
Fletch said...
http://www.dailyfinance.com/2009/08/25/sec-faces-trouble-with-b-of-a-settlement/
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9-15-2009 @ 10:09AM
gm said...
Here is my guess to the Citi situation.
Gov't makes a statement that after examining Citi's books, it has determined that (C) can sustain itself. The market on (C) goes to $5.00. The Gov't sells 52% of its (C) holdings and continues to influence the direction of (C).
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9-15-2009 @ 10:48AM
Michael said...
Your lack of understanding of the fundamental principles of conflicts is astounding. This is not an issue of concflicts. This is not an issue of insider information. Is there anyone on this planet who would buy City stock that doesn't know that Citi is insolvent? If so, that ignorant person might have a claim. No one else does. Anyone who buys Citi stock now cannot claim, let alone prove in a court of law, to be aggrieved if the stock price returns to zero. The company is insolvent and has been for years. The stock price is the equivalent of an option premium. It doesn't reflect any present value in the assets or the business. Thus, there is no insider claim possible at the present time. On the other hand, the fact that the Government would hold onto stocks to protect against further does not give rise to a conflict of interest. The Government's job is not to make a profit; it is a "non-profit" operation by definition. It's nice when the taxpayer's money gets repaid in full to reduce the need for taxes. But, the governent's decision to hold on, if they do, to protect against a second shoe dropping in the credit markets would be the job they are supposed to do (assuming one believes in the invisible hand theory). To suggest it raises a conflict of interest is quite simply: uninformed.
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9-15-2009 @ 1:27PM
Bill said...
Yes, Citi is broke. But, so is the US Teasury. We are 100 Trillion dollars in debt!! If this was a picture of our personal finances, we would be laughed at, and out on the street. We would cease to exist. Our creditors would sieze our assets for payment, and we would be bankrupt, and homeless.
This country is a hollow shell compared to, say, 50 years ago. We can only survive by borrowing from our future. A debt that can never be paid. We have no assets left. It's all a con game now. Everyone is broke, you just can't see it, yet.
This government is riddled with greed and corruption. The common man is a pawn, in a crooked game. Have you checked your 401k values lately? How about the value of your house? The middle class is being liquidated before our eyes. The government has NO concern for you. Why should they? They have been robbing you blind for years, and now you want to complain?
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9-15-2009 @ 1:54PM
bjaneyre said...
Bravo Bill. You have my attention... Excellent comments....
9-15-2009 @ 1:23PM
DICK JENSEN said...
CITIBANK CAN HELP OBAMA MAKE AMERICA A THIRD WORLD COUNTRY.
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9-15-2009 @ 2:00PM
bjaneyre said...
Without a viable Middle Class, this country becomes a 3rd World Country. The Middle Class, is the litmus test for being a World Class Country...
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9-15-2009 @ 3:57PM
Mike said...
It's all too apparent that the globalization corporates do are not interested in America being a World Class Country nor do they care for a viable middle class. All they are focused on now is global market expansions to build up a global supply of lower end mediocre consumers. Which is why we just witnessed the government enforced corporate led, take up of the American people's personal saved up wealth over the past 2-3/4 years. And don't deniegh that $Trillions of personal wealth was not collected up over the past 2-3/4 years because that is exactly what they did. Went into corporate bank accounts. Money just doesn't diappear into thin air. We the people aren't holding that money. It was confiscated. Then the government laid out onto the table $Trillions of freshley printed, unbacked NEW money. The old money that was collected up is ear marked for the corporates global market expansion for the benefit of the globalist corporates. We the people get to bend over and grab the old ankles and settle into a sublime mediocre life of sub-human globalist consumer. The globalist corporates are going for global bulk profits rather than any old model local economy for those mediocre profits. It's all about the globalists corporate profits regardless who gets stepped on to get at them. Even if it means knock the people in the head and take their money to use to go after the global profits while the government watches and lends them a hand as well as any legislation they might need to speed them along in their greed. The government has become corporatized,LLC. Prepare to live the corporate farmed life from here on out. Put a chip in your right hand.
9-15-2009 @ 2:12PM
ajgorm said...
The big financial company may have to raise money to pay the Treasury Department back. !!!!!This takes the CAKE..Why not just give it all to the government and walk away. Partners with a SILENT lifeless fed that owns too much and has to much to manage. WHAT numskulls. Why not just hire bankers to count money we dont have after they rescue BANKS what more will we have to do besides accounting from the fed once they own it all. Maybe we can get elected to run the government for them since they are so busy counting our money..
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9-15-2009 @ 3:24PM
clem said...
how many fed board members came from a stint with the wmf?, how many treasury employees came from the fed? how many citi employees has a world bank / IMF background? how many treasury employees came from citi
is there a differnce between the obama boys and the bush gang?, if so what?
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9-15-2009 @ 5:52PM
Aaron said...
I may be wrong, but I thought that Congress, the Senate, and the White House ARE allowed to use inside trading advice. I thought that was a big deal a couple months ago. And if that is the case, why dont we use those tactics to either get the most for our money. The people have been screwed out of OUR money for years, why not take FULL ADVANTAGE of all our resources.
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9-15-2009 @ 3:45PM
JEFF said...
CITI WILL DO JUST LIKE CHINA. THEY WILL SHOW FRAUD WAS USED TO SELL THEM THE JUNK AND THEY WILL REFUSE TO HONOR ANY OF THAT DEBT. IT'S ONLY FAIR... DERIVITAVES ARE JUST JUNK AND WILL ALL BE PUT INTO THE TRASH. TOO BAD IF YOU OWN ONE.. IDIOT!!
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9-15-2009 @ 3:59PM
bailoutsos said...
Let's balance the national books by selling Texas to Mexico.
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