US said to be exploring sale of Citigroup stake

The planning is in the early stages, and some transactions may need regulatory approvals.

The US Treasury Department and Citigroup Inc have begun discussing how to sell the 34 per cent stake that the government acquired in the rescue of the bank, people familiar with the matter said.

The Treasury, which owns 7.69 billion common shares after a recent preferred-stock conversion designed to shore up the bank’s capital , may start unloading the stake as soon as October, one of the people said. It aims to sell the holdings over the next six to eight months, the person said.

A sale, a year after Lehman Brothers Holdings Inc. filed for bankruptcy, may bring Citigroup Chief Executive Officer Vikram Pandit closer to an exit from the bailout program while allowing the government to claim a profit. Because the New York- based bank’s stock price has gained since $25 billion of bailout funds were exchanged for common shares, the Treasury is sitting on a paper profit of $9.77 billion.

“Given the conversion and what’s happened to the stock price, it is likely that the government would make money on it,” said Moshe Orenbuch , an analyst at Credit Suisse Group AG who rates the shares “neutral.”

Citigroup’s stock closed at $4.52 a share yesterday, a 39 per cent premium over the Treasury’s conversion price of $3.25. The shares slipped to $4.42 in German trading today.

The planning is in the early stages, and some transactions may need regulatory approvals, the people familiar with the matter said. Under one scenario, the shares would be sold to public investors in blocks over six to eight months. In another, the government may sell a small amount of stock daily or weekly, said the people, who declined to be identified because the talks are private. Under a third option, the shares would be sold at once in a managed offering.

Treasury spokesman Andrew Williams and Molly Meiners, a spokeswoman for Citigroup, declined to comment.

Citigroup, the third-biggest US bank, received $52 billion in bailout aid, and a sale of the common stock would leave the Treasury with a $27 billion investment. That stake is in trust-preferred shares — a class of securities that ranks senior to common stock and junior to most debt.

If the Treasury sells its shares through a managed offering, the bank may piggyback on the effort by simultaneously issuing new shares to help pay off the remaining bailout funds, one person familiar with the matter said.

The Obama administration has begun efforts to wind down the government’s $700 billion financial rescue program, while pledging to manage the withdrawal carefully. In a report on Monday, the Treasury said it was “committed to ensuring the stability of financial markets” and that “the process of exit will be prudent, not hasty.”