WASHINGTON — The U.S. plans to sell a portion of the $2.2 billion in trust preferred securities it obtained from Citigroup Inc. when it pledged to share in losses on a pool of the rescued bank's assets.
Selling trust preferred securities is the latest step by the government to unwind the sizable ownership stake it received when it helped Citi to survive the financial crisis.
The Treasury said Wednesday it plans to begin selling the trust preferred securities this week. It remains unclear exactly at what price the securities will be sold or how much of its holdings the Treasury will sell.
The shares have a liquidation price of $25 each and can be redeemed starting Oct. 30, 2015. A group of investment banks is soliciting buyers, and pricing information is expected to become clearer this week.
A Citi spokesman said, "At the initiative of the U.S. Treasury, Citi has elected to remarket the entirety of the trust preferred securities" held by the Treasury. "We are very appreciative of the support provided by [the Treasury] during the financial crisis."
By July, the Treasury said it had sold 2.6 billion of the 7.7 billion common shares it owned, in incremental sales usually amounting up to 10% of daily trading volume. But its hope of ridding itself of all its Citi common stock by the end of the year appears to be fading. Trading volume in Citi's stock has been lower over the summer than in the spring, reducing the amount the Treasury can sell without affecting Citi's stock price.
Unless the daily volume of Citi stock jumps considerably, it is unlikely that the Treasury will complete the sale of all its common stock this year, unless it changes course and conducts a block sale of shares.
The government received the common stock in February 2009, when it converted preferred stock into common to help improve Citi's common equity capital ratio, giving the Treasury a 28% stake in Citi's stock. Its stake had shrunk to about 18% when it last updated the public in July.
The Treasury obtained the trust preferred securities in connection with a January 2009 deal in which it agreed to share in losses on a $301 billion pool of assets held by Citigroup. The deal was part of a wider rescue of Citigroup carried out as part of the government's financial-bailout program.
The Treasury ultimately wasn't required to make any payouts under the loss-sharing agreement, which was canceled last December. "Because Treasury was never required to make any payments under the arrangement and has no obligation to do so in the future, the entire proceeds from the sale would represent a profit to taxpayers," Treasury spokesman Mark Paustenbach said.
In midday trading Wednesday, Citi's shares were up 2.1%, to $3.96, in a falling market. The stock is up nearly 20% so far this year.