The Treasury Department intends to unload its 27% stake in the bailed-out banking company Citigroup Inc. using a preset trading plan that will lock in a schedule for selling the shares, people with direct knowledge of the matter said.
The plan, which may be announced next month, is similar to those used by executives to protect themselves against accusations of insider trading, said the people, who asked not to be identified because the process is not final. The Treasury would be able to issue instructions on how many shares to sell, when to sell them and at what price while averting concern that the sales are based on nonpublic information.
"What they are looking to do is to optimize taxpayer return while ensuring market stability," said Stephen Myrow, a former Treasury official who is now a managing director at ACG Analytics Inc., a Washington investment research firm.
A sale of the Treasury's shares, which could be completed this year, would bring Citigroup a step closer to leaving the government's Troubled Asset Relief Program. Citi needed $45 billion of taxpayer money in late 2008 as depositors' withering confidence almost triggered a run.
As the Treasury completes plans for the sale, it is also deciding on an investment bank to manage the offering, the people said. Firms still in the running include JP-Morgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley, the sources said.
JPMorgan Chase spokesman Brian Marchiony declined to comment, as did Morgan Stanley's Mark Lake and Goldman Sachs' Andrea Rachman. Citigroup spokesman Stephen Cohen and Andrew Williams, a Treasury spokesman, also declined to comment. All four banking companies are in New York.
Citigroup applied for the job and offered a discount, the sources said. It was unlikely to get the nod, however, because of the potential conflict of interest. As part of its deal with the government last year to trade some of its preferred shares for common stock, Citigroup agreed to pay the costs associated with a share sale.
The decision to use a preset trading agreement makes it likely that the Treasury share sale will begin after Citi announces earnings on April 19, securities lawyers said.
One condition of entering into the contract is that the participant have no "material nonpublic information" about the company — a circumstance that can occur after quarterly or annual results are disclosed, said David Martin, a partner in the Covington & Burling law firm in Washington.
"The presumption is, I cannot know things that are material because everybody has this," said Martin, who formerly headed the Securities and Exchange Commission's division of corporate finance. "The government would want to make sure it happens at times when the playing field is level."
In September, the Treasury converted $25 billion of the bailout funds into common shares at a price of $3.25 each. In December, Citigroup repaid the remaining $20 billion, and the Treasury agreed to hold off on selling the common shares for 90 days. This lockup period expired on March 16.
Based on Wednesday's closing share price of $4.15, the Treasury's stake has a market value of $31.9 billion, or a paper profit of $6.9 billion.