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Tuesday, September 15, 2009

Citi shares down on concerns of U.S. government sale

Citigroup Inc (NYSE:C - News) shares were trading down around 5 percent on Tuesday after reports that the government may begin shedding its stake in the New York-based bank.
Citigroup, eager to escape the burden of a significant government ownership stake, is in talks with U.S. officials about selling part of the government's 7.7 billion shares in the bank, sources familiar with the situation said.

Investors have generally welcomed banks unwinding government investments made during the financial crisis, but selling a large block of shares could pressure Citigroup stock.
How such a sale would take place is unclear, as is whether the government would ultimately go along with such a plan after having to give more than $45 billion in support to Citigroup over the past year.

The Wall Street Journal reported that Citigroup executives were eyeing plans for a joint stock sale in which the bank would issue as much as $5 billion in new shares to the public while the U.S. Treasury would sell an undetermined portion of its 34 percent stake.
Citigroup Spokeswoman Shannon Bell declined to comment.

Mike Holland, president of money manager Holland & Co in New York, said fears of an over-saturated market for Citi shares could be the reason why they are trading down today.

"One plausible explanation could be the huge supply coming on the market," said Holland, who nonetheless welcomed the news that Citi was exploring options for exiting the bailout program.

Citigroup shares were down 22 cents, or 4.9 percent, to $4.30 in late morning trading. The bank's stock was the trading session's biggest decliner on the KBW Banks index (Philadelphia:^BKX - News).

The Journal reported that Citi contacted a U.S. Treasury official during the weekend with the message that the company wanted to begin discussions about the government shedding its stake.

The government would stand to make billions of dollars in profit from its stake in Citi, as the shares have rallied about 40 percent since the announcement of a deal to convert the Treasury's stake into common stock.