U.S. exits Citigroup stake, earns $12 billion profit

The U.S. Treasury said it will take in $10.5 billion in sale proceeds from a public offering of 2.4 billion Citigroup shares, announced just hours earlier. The price is 10 cents below the $4.45 closing price on the New York Stock Exchange.

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, Treasury acting assistant secretary for financial stability.

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 added in a statement.

The Treasury invested a total of $45 billion to bail out Citigroup in 2008 and 2009 during the financial crisis. The company paid back $20 billion in preferred stock, while another $25 billion was converted to 7.7 billion common shares held by the Treasury.

It had whittled that stake down over the past year from 27 percent to less than 7 percent through controlled sales in the market.

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 GM IPO attracted strong interest from domestic institutional investors and foreign sovereign wealth funds alike.

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.

The offering, run by Morgan Stanley as bookrunning manager, is expected to close on or about December 10, 2010. Underwriting fees for the transaction will be paid by Citigroup, Treasury said.

IN THE BLACK

The Treasury said its estimate of a cumulative $12 billion profit from the $45 billion bailout includes gains from the sale of common stock of around $6.85 billion, interest and dividends of $2.9 billion and $2.2 billion in Trust Preferred Securities it received for guarantees on a pool of Citigroup assets.

Treasury averaged a price of $4.14 for each of the 7.7 billion Citigroup shares it sold. It received the shares at a conversion rate of $3.25 each.

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 Treasury also said it is entitled to receive some $800 million in Citigroup Trust Preferred Securities from the Federal Deposit Insurance Corp under a debt guarantee program -- provided that the FDIC incurs no losses on Citigroup debt it backstopped during the financial crisis.

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

(Additional reporting by Glenn Somerville in Washington, Paritosh Bansal and Maria Aspan in New York; Editing by Muralikumar Anantharaman)