The government reversed plans to begin reducing its trimming its 34% stake in Citigroup Inc. after investors balked at buying the bank's shares, according to people familiar with the situation.
Citigroup was nearing completion late Wednesday on the sale of about $17 billion of newly issued shares. But the offering encountered such a lukewarm response that Treasury Department officials decided to hold off on selling any of its shares until next year, these people said.
At the expected sale price of $3.15 a share, the U.S. government would have suffered a loss of 10 cents per share on its 7.7 billion-share stake in Citigroup, or about $770 million.
Treasury officials also agreed not to sell the government's shares for at least 90 days. The 90-day lockup is a significant concession because the government previously could sell its Citigroup shares whenever it wanted.
Citigroup said Wednesday evening that it plans to go forward with repaying the financial lifelines it got under the Troubled Asset Relief Program. That includes unwinding a deal in which the government shields Citigroup from most losses on $301 billion of assets held by the company.
As Citigroup gauged interest in its huge offering, announced Monday, some investors said they were willing to buy shares only if the company extracted an agreement from the Treasury Department to hold off on any future stock sales for at least 90 days, according to people familiar with the matter.
The government now plans to unload its Citigroup stock gradually over the next 12 months, people familiar with the situation said. That is a major shift from the Treasury Department's announcement Monday that it planned to dispose of the shares over six to 12 months.