Jin Lee/Bloomberg NewsVikram S. Pandit, chief executive of Citigroup, thanked the Treasury on Monday for its support.8:30 p.m. | Updated
Citigroup is finally wriggling free of Uncle Sam.
Two years after the financial giant was bailed out by the federal government, the United States Treasury is selling its remaining shares in the company.
The move, announced late Monday, largely ends the remarkable federal rescue of Citigroup, whose downfall came to symbolize all that was wrong with Wall Street. It also represents another milestone in the postbailout era.
While the government would retain a vestigial interest in Citigroup after the offering, the sale would effectively free the giant company from modest federal pay restrictions and lift a cloud that has hung over its chief executive, Vikram S. Pandit. “We are very appreciative of the support provided by the U.S.T. during the financial crisis,” the company said in a statement, referring to the United States Treasury.
Emboldened by strong investor interest and recent initial public offering of General Motors, another bailed-out giant, the Treasury announced Monday evening that it would start selling 2.4 billion shares of Citigroup common stock. The deal was expected to be priced at $4.35 a share, a 2 percent discount, according to a person briefed on the transaction who asked for anonymity because the deal had not yet closed. All told, that means that taxpayers will reap about a $12 billion profit on the Treasury’s multibillion-dollar investment in Citigroup.
While the final accounting of the government broader bailouts will not be known for years, major banks and the Detroit automakers have emerged from the rescues far faster than many had expected. The government remains deeply entangled in the mortgage giants Fannie Mae and Freddie Mac, but officials are mapping out plans to wind down the investment in the American International Group, possibly through a stock offering early next year.
Proceeds from the Citigroup sale would be the single biggest profit yet from the government bailout programs. Few saw such a quick windfall two years ago. Many doubted the wisdom of using taxpayers’ money to rescue Citigroup, which was devastated when the home mortgage market imploded. Citigroup was the biggest user of several of emergency support programs that the Federal Reserve put in place during the crisis.
But federal officials, worried that the failure of Citigroup might cascade through the financial system, ended up injecting $45 billion into the company in the autumn of 2008, and creating an enormous insurance policy covering potential losses on more than $301 billion of real estate assets.
In return, the government assumed ownership of nearly a third of Citigroup. It also secured a small piece of potential profits through securities known as warrants.
After several big banks repaid their bailout funds, Citigroup officials began pressing the Treasury to allow their company to do the same. Last December, Citigroup was allowed to return $20 billion of its bailout funds, and the government announced plans to unwind its remaining $25 billion common stock investment.
A bungled stock sale forced the Treasury Department to delay its initial offering for Citigroup until April, when the government began to sell its nearly 7.7 billion shares. Through October, the government had sold about 5.3 billion shares to private investors, at an average price of just over $4 apiece. With dividends and other payments, that meant the government had fully recouped its initial $45 billion investment.
As interest in the Citigroup shares picked up, Treasury officials began plotting a larger stock offering for several months but kept bank officials in the dark about their plans. On Monday morning, the Treasury informed Citigroup that it planned to sell the remaining 2.4 billion shares all at once. Morgan Stanley, which had handled the previous stock sales, is leading the offering.