The Treasury delayed a plan to sell $5 billion of Citigroup Inc shares after a stock offering by the bank attracted weak demand and priced at a much lower-than-expected $3.15 a share.
The bank is raising capital to repay the $20 billion it owes to the government so it can avoid the executive compensation restrictions that came with multiple U.S. bailouts.
Citigroup was the third major U.S. bank to launch a multibillion-dollar share sale in December and the multitude of share sales likely damped demand, analysts said.
Citigroup said its sale of shares and convertible securities was the largest in U.S. capital markets history.
Buyers are in control of the process now, said Blake Howells, director of research at Becker Capital Management in Portland, Oregon.
Citigroup said it raised $17 billion in its share offering, and another $3.5 billion from selling debt that automatically converts into shares in three years.
The bank raised the capital it planned to, but at a steep cost: The $3.15 price represented a 20 percent discount to where the shares were trading before the offering was announced early on Monday, and an 8.7 percent discount to where Citigroup's shares closed on Wednesday.
The share sale price is also less than the $3.25 price at which the government bought them earlier this year as part of an emergency rescue of the No. 3 U.S. bank.
Treasury is not going to sell at a loss. That's the bottom line, one source said.
The U.S. government still plans to sell its 7.7 billion Citigroup shares within the next year, a source said. The U.S. has agreed not to sell Citi shares for 90 days.
The United States' decision not to sell shares was an about-face from Monday, when Citigroup said the government would sell up to $5 billion of shares alongside the bank's offering.
The bank sold convertible notes that pay a coupon of 7.5 percent a year, and automatically convert to shares at a 25 percent premium to the pricing level in three years.
The bank said Monday it also plans to issue $1.7 billion of shares to employees, and may sell another $3 billion of trust preferred securities in the first quarter.
Citigroup's sale was likely hampered by Wells Fargo & Co , which sold about $12.25 billion of shares on Tuesday, analysts said. Wells Fargo's shares sold at a 2 percent discount to their closing price before that bank announced its issuance plans late Monday.
Bank of America sold $19.3 billion of shares earlier this month.
There are so many big share sales that investors are more selective, said Joe Plevelich, an equity research analyst at Schneider Capital Management in Wayne, Pennsylvania.
If Citi had been the only bank to price this week, there might have been more interest, he added.
(Additional reporting by Elinor Comlay; editing by Andre Grenon and Steve Orlofsky)