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U.S to earn profit on Citi bank shares
The U.S. Treasury set plans to sell the last of its Citigroup Inc. common shares in a $10 billion offering that would cap the government’s biggest bank bailout of the financial-market meltdown.
The move, which could reap a $9.4 billion profit for taxpayers on the government’s $45 billion Citi investment, allows the administration to quell some of the criticism that it went too far in propping up the financial system. It also allows the bank to shake the market stigma that it has effectively been a ward of the state.
Only two weeks ago, the Treasury also stepped on the gas pedal on its plan to exit its 61% stake in General Motors Corp., boosting the size of its sale of GM stock by 63% from as little as 263.5 million shares to 412.3 million shares. People close to the agency denied the election played a role in the timing of the share sale.
At the current market level, the Treasury’s sale of 2.4 billion shares, which is likely to be at an slight discount to Monday’s closing price of $4.45 a share, would indicate the government should reap a profit of $9.4 billion, according to Linus Wilson, a professor of finance at University of Louisiana at Lafayette.
Treasury acquired a stake of more than $52 billion in Citi during the market meltdown, consisting of an initial $25 billion in preferred shares in October 2008, an additional $20 billion two months later, and $7.1 billion in January 2009.
The bank repaid $20 billion through a stock sale late last year. The bulk of the remaining amount was converted into common shares to be sold off by the Treasury. Of the eight banks that were in the original 2008 Treasury bailout, Citigroup was the only one in which the government took an investment in common shares.
Looks like TARP funds sufficiently repaid itself.
On another note, Wall Street got 700 billion bailout from the government and a 3.2 trillion bail out from the Federal Reserve. They would have wrecked the U.S economy if they failed.