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Gov't plans to sell 2.4B shares of Citigroup stock

Martin Crutsinger

The government said Monday that it will sell its remaining shares of Citigroup common stock and expects to turn a profit on its $45 billion bailout of the giant bank.

The Treasury Department said that it will sell about 2.4 billion shares of Citigroup Inc. common stock. The sale would begin immediately and would end when the government determines that it has received an acceptable price for the shares.

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.

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 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. 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 had sold 5.3 billion shares of common stock before Monday's announcement. The planned sale of the additional 2.4 billion shares would complete the sale of Treasury's holdings of Citigroup common stock.

Treasury announced that at the end of October it had realized $42.8 billion in total proceeds from its Citicorp investments, including sales of common stock and interest and dividend earnings.

However, that total did not take into account 900 million additional shares of common stock that have been sold in recent weeks. While Treasury has not publicly released a figure for its earnings on those sales, a ballpark estimate brings the amount received for those shares to $3.6 billion.

When that $3.6 billion is added to the $42.8 billion that Treasury has announced receiving, it brings the total return to the government to $46.4 billion. That means the government is now in the black on the $45 billion in support provided to Citi from the $700 billion Troubled Asset Relief Program.

The ultimate earnings for taxpayers will rise further when the sales of the final 2.4 billion shares of Citigroup common stock are included.

"Selling off the remaining stake ensures that taxpayers will book a healthy profit on the Citigroup investment," said Linus Wilson, a professor of finance at the University of Louisiana at Lafayette.

Wilson estimated that Treasury could end up with a profit on its Citigroup bailout of around $9.4 billion.

In addition to the common stock, Treasury still holds Citigroup warrants that it has yet to sell. Those warrants give the holder the right to buy Citigroup common stock at a specified amount. Treasury is also entitled to receive up to an additional $800 million for the trust preferred shares of the bank that it owns.

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.

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

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AP Business Writer Pallavi Gogoi in New York contributed to this report.

The Associated Press