Monday, March 29, 2010

Treasury sale of Citigroup stock the right move?

Wall Street is buzzing about the Treasury's plan to exit its massive TARP "investment" in Citigroup (NYSE: C). Most people assume it will sell its 27 percent stake via some sort of preset trading plan that will lock the government into a schedule for selling its shares. A formal announcement is expected at some point.

What remains a little murky at this point is what Treasury's thinking is. On one hand, the time may be ripe to sell its stake. Its shares have surged in to value at around $33 billion. So the stock sale would be massive. Reuters notes the only stock offering that comes close was made by Japan's Nippon Telegraph and Telephone, which raised $36.8 billion in 1987. But that was more of a traditional IPO. This would be more of a staggered sale along 10b5-1 lines. Still, this is a massive undertaking. And bragging rights may be on the line. J.P. Morgan Chase (NYSE: JPM), Morgan Stanley (NYSE: MS) and Goldman Sachs (NYSE: GS) are among those angling to be named underwriters. According to the Washington Post, Goldman Sachs has offered its services to the Treasury at almost no cost, industry officials familiar with the matter said. This recalls to some extent the IPO of Google (Google news), which banks felt they just had to be a part of somehow.

Would exiting the investment prove a wise move now? Many people are inclined to say yes. One expert told the Post, "This is just an incredibly bullish sign." The thinking is that a successful sale would validate the bailout plan that has generated so much controversy. It's unclear how much the sale would generate, but it just might represent a nice profit on the government's "investment." The Washington Post estimates the profit at $8 billion.

Another view, however, is that the Treasury is selling too soon. Several analysts think the value of the stock is heading north. And some think the government could net even more if it were to wait. One expert goes so far as to say that "the Fed and Treasury know more about the Citi balance sheet than analysts or investors, so a sale now represents a vote of "no confidence" in the bank and the credit markets."

There's no way of knowing of the stock will collapse in the near future, of course. It may be wise for the government to sell out now. A Sandler O'Neill analyst says a definitive TARP exit move by the government might spark more interest by institutions. Such a move could reduce fears that CEO Vikram Pandit (Vikram Pandit news) is merely a tool of the government. Another thing, it would end the fear that the government will dump shares at super-low prices.

You can bet Citigroup executives are hoping the sale goes through. - Jim


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