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Citigroup Shares Decline After U.S. Treasury Delays Stake Sale

The share price in Citi's $17 billion equity sale was so low that the government delayed plans to shrink its one-third stake in the bank

By Michael J. Moore and Michael Tsang

(Bloomberg) — Citigroup Inc. (C) fell as much as 9.3 percent in New York trading after the U.S. Treasury Department delayed selling its stake in the bank following a $17 billion new-stock deal.

Citigroup fell 23 cents, or 6.7 percent, to $3.22 at 10:56 a.m. on the New York Stock Exchange, the biggest decline since Sept. 15. The bank sold 5.4 billion shares at $3.15 apiece yesterday, less than the $3.25 the government paid when it acquired a one-third stake in the New York-based bank in September. Citigroup said Treasury won't sell any of its shares for at least 90 days.

Investors demanded a bigger discount from Citigroup than Bank of America Corp. (BAC) or Wells Fargo & Co. (WFC), which together raised more than $31 billion this month to exit the Troubled Asset Relief Program. Wells Fargo, which trumped Citigroup Chief Executive Officer Vikram Pandit's bid to buy Wachovia Corp. last year, leapfrogged its rival by completing a $12.25 billion share sale Dec. 15. JPMorgan Chase & Co. (JPM) repaid $25 billion in June.

"The market cast its vote and they're low down on the ballot," said Douglas Ciocca, a managing director at Renaissance Financial Corp. in Leawood, Kansas. "Citigroup needs to show steps to reinstall the quality of the brand."

With the sale, Citigroup's common shares outstanding increased to 28.3 billion. That's up from 22.9 billion as of Sept. 30 and 5 billion at the end of 2007.

"More shares outstanding means less value per share," said Edward Najarian, an analyst at International Strategy and Investment Group in New York, who has a "hold" rating on the shares. "The whole structure of their deal to pay back TARP wasn't very good for common shareholders and that is being reflected in the pricing."

Price Discount

The $3.15 price on the new shares was a 20 percent discount from the closing price on Dec. 11, before Citigroup announced the plan to repay TARP.

"Wells Fargo proved they can execute better," said Michael Johnson, chief market strategist at M.S. Howells & Co., a Scottsdale, Arizona-based broker-dealer. Pandit, 52, is "sitting on one of the best investment banks in the world and Wells, which really doesn't have an investment bank, still outperforms him," Johnson said.

The government decided not to participate in the equity offering based on the pricing of the shares, according to a Treasury official. The U.S. expects to divest its ownership stake in Citigroup shares during the next 12 months, the official said.

Equity Units

The bank said it also raised $3.5 billion by selling "tangible equity units," securities that make quarterly payments of 7.5 percent a year and include a requirement to buy Citigroup shares in 2012. The total of $20.5 billion was the largest public equity offering in the history of U.S. capital markets, according to Citigroup.

Citigroup's Dec. 15 announcement that Abu Dhabi Investment Authority was trying to abort an accord to buy $7.5 billion of Citigroup stock may also have hurt confidence in the bank's secondary stock offering, said Blake Howells, an analyst at Becker Capital Management in Portland, Oregon.

Abu Dhabi "certainly couldn't help," Howells said.

Citigroup said earlier this week that it would sell at least $20.5 billion of equity and debt to exit TARP. After that announcement, the Treasury said it would sell as much as $5 billion of its stake, in conjunction with the bank's secondary offering, with the rest to be sold over the next year.

Treasury's Stake

The Treasury holds $25 billion in common stock in Citigroup, along with a $20 billion preferred equity stake and further preferred shares granted in connection with an asset- guarantee agreement. At the offering price of $3.15, the 7.7 billion shares are valued about $770 million less than the Treasury's cost.

Bank of America, the largest U.S. lender, raised its funds on Dec. 3. The Charlotte, North Carolina-based bank, which yesterday named Brian Moynihan as its new chief executive officer, sold 1.286 billion so-called common equivalent securities at $15 each, a 4.8 percent discount to its closing price that day. Wells Fargo, whose largest shareholder is billionaire investor Warren Buffett's Berkshire Hathaway Inc. (BRKA), completed its sale at a 1.9 percent discount.

To contact the reporters on this story: Michael Moore in New York at; Michael Tsang in New York at

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