Citigroup Warrants Will Be Auctioned as Treasury Sells Last of TARP Stake
Treasury to Sell Citigroup Warrants in Current Quarter
Joshua Roberts/Bloomberg
The U.S. Treasury Department will sell warrants this quarter in Citigroup Inc. that were given to taxpayers in return for rescuing the lender during the financial crisis.
The U.S. Treasury Department will sell warrants this quarter in Citigroup Inc. that were given to taxpayers in return for rescuing the lender during the financial crisis. Photographer: Joshua Roberts/Bloomberg
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The U.S. Treasury Department will sell warrants this quarter in Citigroup Inc. that were given to taxpayers in return for rescuing the lender during the financial crisis.
The warrant sale will be conducted through a public offering and “would represent Treasury’s disposition of its remaining holdings” in New York-based Citigroup, the Treasury said in a statement today. Warrants for two smaller firms also will be sold, according to the statement.
The sales may help the U.S. defray costs of bailing out banks and insurers during the market collapse of 2008. Bailout warrants typically gave the Treasury an option to buy stock at a set price until 2018, allowing taxpayers to benefit if the companies recover and their shares rebound.
The U.S. holds one set of about 210 million warrants with a so-called strike price of $17.85, and a second set of about 255 million warrants at $10.61, according to a government report on the Troubled Asset Relief Program. Citigroup shares closed yesterday at $5.04.
Treasury in November 2008 gave Citigroup a $20 billion emergency infusion, on top of $25 billion received the prior month, from the $700 billion TARP fund. The government also guaranteed more than $300 billion of distressed Citigroup assets, helping to prop up the bank as its share price plunged below $5 and depositors withdrew funds.
Dutch Auction
“Citi is pleased that the Treasury has announced its plans to exit from its warrant positions,” said bank spokesman Jon Diat. “Citi is very appreciative of the support provided by the Treasury and taxpayers during the financial crisis.”
The offerings will be through a modified Dutch auction. Deutsche Bank AG will be the auction agent and sole bookrunning manager for the offerings, the Treasury said.
The Treasury sold $2.2 billion in trust preferred securities, known as TruPs, last October that it received from the bank in return for the guarantee. The Federal Deposit Insurance Corp. still holds $800 million in Citigroup TruPs. The FDIC holds these securities “for Treasury’s benefit,” according to a regulatory filing.
Neil Barofsky, special inspector general for TARP, yesterday described the government guarantee of Citigroup’s troubled assets which resulted in the warrant deal as “strikingly ad hoc” and based “as much on gut instinct and fear of the unknown as on objective criteria.”
The Treasury said the other two firms in which it is selling warrants are Boston Private Financial Holdings Inc. and Lake Forest, Illinois-based Wintrust Financial Corp.
Boston Private received $154 million in TARP funds, according to Bloomberg data. Led by Chief Executive Officer Clayton “Clay” Deutsch, it paid back $50 million in January 2010 when it repurchased preferred shares it had received from the government. It lost $7.24 million in the third quarter of 2010. Calls to Boston Private were not returned.
Wintrust, whose CEO is Edward Wehmer, received $250 million under TARP, which it paid back in December, according to Bloomberg data. It reported net income of $20.1 million for the third quarter of 2010. Calls to Wintrust were not returned.
To contact the reporter on this story: Ian Katz in Washington at ikatz2@bloomberg.net; Donal Griffin in New York at dgriffin10@bloomberg.net
To contact the editors responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net Rick Green in New York at rgreen18@bloomberg.net.
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