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In a striking reversal of its attempts to
unwind the government's financial stakes in big banks, the Treasury
Department has backed out of plans to sell its 34 percent stake in
Citigroup Inc.
      

The move came after investors responded tepidly to a massive
stock offer by the New York-based bank. Citi said Wednesday it will
sell 5.4 billion common shares at a steep discount to raise the
cash it needs to repay $20 billion of the $45 billion in government
support it received to weather the financial crisis.
      

Citi is the last remaining Wall Street bank in which the
government still owns a major stake. Treasury's move underscores
the Obama administration's halting progress in drawing back the
tens of billions of dollars it invested to stabilize the banking
sector.
      

In what it called the largest equity offering in history, Citi
is selling the common stock at $3.15 apiece, an 8.7 percent
discount to Wednesday's closing stock price. The bank also is
selling 35 million tangible equity units, which can be converted
into common stock at a later date, for $100 each.
      

The government converted $25 billion of its Citi bailout into a
34 percent equity ownership stake in the bank earlier this year.
The government paid $3.25 a share for its stake, which means it
would have lost 10 cents a share in the offering.
      

"Based on today's offering price, Treasury has decided not to
participate in the equity offering," said a department official
familiar with the matter who spoke on condition of anonymity
because she wasn't authorized to discuss it.
      

Citigroup's shares dropped 24 cents, or nearly 7 percent, to
$3.21 in after-hours trading after closing at $3.45.
      

The discount reflected investors' continued uncertainty about
Citi's financial strength. Analysts believe the bank has benefited
from one-time sales and government subsidies but may not yet have
repaired its balance sheet and returned to profitability.
      

The Treasury Department agreed to wait 90 days after the
completion of the offering to sell any of the 7.7 billion common
shares that it owns. The government has said it plans to sell the
entire stake next year.
      

Treasury Secretary Geithner reiterated this week that the U.S.
does not want to be a shareholder in companies. But Treasury's
decision to hold its stake shows that the government, too, believes
Citi may not be strong enough to stand on its own. It also
preserves one of the administration's few remaining bits of
leverage in negotiations with the banks.
      

President Barack Obama called the CEOs of major banks to the
White House Monday to press them to lend more and support his
overhaul of financial regulation. He said the banks benefited from
taxpayer bailouts, and should do their part to support economic
recovery.
      

Obama and the bankers called the meeting productive, but Obama
failed to extract any concrete promises on the issues he raised. A
day earlier, he had gone on TV to call the bankers "fat cats" who
"don't get it."
      

Citi was the only one of the 12 banks whose CEO did not attend
the meeting. It said CEO Vikram Pandit was tied up with the
announcement about repaying the first $20 billion of its bailout.
Chairman Richard Parsons was to attend the meeting, but ended up
dialing in from New York because of inclement weather.
      

Citigroup announced the offering on Monday, shortly before Wells
Fargo & Co. announced plans to raise capital through a public stock
offering to pay back its own government bailout loan. The San
Francisco-based bank priced a $12.25 billion offering of common
stock on Tuesday.
      
The offerings followed a share sale by Bank of America Corp.
earlier this month. The Charlotte, N.C.-based bank, which named its
consumer banking chief as CEO Wednesday evening, raised $19.29
billion to help pay back $45 billion in government bailout funds.
      

Citigroup said once the offerings are complete and it repays the
$20 billion, it will no longer be deemed a recipient of
"exceptional financial assistance" under TARP, and therefore
won't be subject to some of the strict executive compensation rules
attached to its bailout.
      

The repayment may boost Citigroup's image. It also will save the
bank $1.7 billion a year in dividend payments. However, the capital
raise significantly dilutes current shareholders' stakes.
      


The Washington Post reported late Tuesday that Citi had received
a special tax break to help it exit the bailout. The tax change
saved Citi $38 billion.
      

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Business and Economic News

In a striking reversal of its attempts to
unwind the government's financial stakes in big banks, the Treasury
Department has backed out of plans to sell its 34 percent stake in
Citigroup Inc.

Treasury backs out of plans to sell Citi stake

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