Treasury wants cash back before selling Citi stake

NEW YORK - The US Treasury won't sell its 34 per cent stake in Citigroup until a broader plan to repay all obligations from last year's US$45 billion government bailout is agreed, a person close to the department said.

Treasury officials are concerned that a sale now of its 7.7 billion shares in the New York-based bank may weaken investor demand if Citigroup needed to raise capital as a condition of exiting the bailout programme, said the person, who declined to be identified because the Government hasn't publicly discussed the plans.

Citigroup executives have pressed Treasury for at least three months to sell the stake as a first step towards leaving the bailout programme. They want to escape government-imposed pay limits that may make it vulnerable to employee-poaching by unfettered rivals. Bank of America, the only other large US bank under pay limits, last week announced an exit.

"This should be well thought-out for the benefit of all constituencies, and in this case that includes shareholders, the government and the taxpayers," said Dennis Santiago, CEO of analysis firm Institutional Risk Analytics in Torrance, California. "Just because Bank of America goes doesn't mean you have to rush Citigroup."

The Government is trying to wind down bailout programmes extended as financial markets convulsed late last year. Treasury Secretary Timothy Geithner said last week most taxpayer money injected into banks through the Troubled Asset Relief Programme will eventually be recovered.

Last month, the Federal Reserve asked nine of the biggest US banks to submit plans to repay the Government's capital injections. In testimony last week before the Senate Banking Committee in Washington, Federal Reserve chairman Ben Bernanke said Bank of America got approval to exit Tarp only after regulators "felt it was safe and reasonable and appropriate".

Bank of America, the biggest US lender, agreed to raise at least US$18.8 billion of capital. It said later that it had raised US$19.3 billion.

JPMorgan Chase, Goldman Sachs Group and Morgan Stanley, all based in New York, repaid their bailout funds in June.

San Francisco-based Wells Fargo, which still has US$25 billion of Tarp money, isn't subject to pay limits because it never needed a second helping of bailout funds, as Citigroup and Bank of America did.

In October, Citigroup chief executive Vikram Pandit said he was "focused on repaying Tarp as soon as possible".

The Treasury got the shares in September, when US$25 billion of the bailout funds were converted into common stock. The shares are now worth US$31.2 billion, based on a December 4 closing price of US$4.06, giving Treasury a paper profit of more than US$6 billion.

A government of Kuwait investment fund that got about 900 million shares in a related preferred-stock conversion said yesterday that it had sold the stake for US$4.1 billion, reaping a US$1.1 billion profit.

Citigroup spokesman Jon Diat declined to comment on the Treasury's plans or the bank's timeline for repaying Tarp funds.

- BLOOMBERG