Top Citigroup executives are mulling a multi billion-dollar stock offering as the financial services provider intends to raise capital, reducing the US government's 34 per cent stake in the firm, media report says.
"Citigroup eager to shed the stigma of being a ward of the state, is working on a plan to reduce the US government's 34 per cent stake," the Wall Street Journal reported.
Quoting people familiar with the matter, the daily said as part of the multi-billion dollar stock offering, Citigroup would issue new shares to the public, while the Treasury Department would sell a portion of its Citigroup holdings.
WSJ further said citing familiar sources that Citigroup had called a Treasury official and said that it wanted to start talking about paring down the Treasury investment.
To this, the treasury officials responded to Citi that they didn't object to the company paying back Washington as long as Citi first raised offsetting capital, WSJ said quoting sources.
Citigroup's stake sale plan comes amid Wall Street's rapid rebound from the dark days of the financial crisis.
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"The tentative aim is for a joint stock sale. Under this scenario, Citigroup would issue as much as $5 billion in new shares, while the government would simultaneously sell an undetermined amount of the stock it is holding," WSJ said.
Amid the global financial turmoil which engulfed many banks in the US, the American government acquired 34 per cent stake in Citigroup in February this year.
"Executives hope such an offering could take place as soon as the fourth quarter. Citigroup could use proceeds from a stock sale to redeem some of the preferred stock the Treasury is holding," the WSJ said.
Executives say the company would launch a stock offering only if the Treasury agrees to sell shares, it added.
Some analysts, however, think it would be premature for Washington to start shedding its stake.
"For both Citi and the government to get out with credibility, they'll have to show at least a few quarters of decent results (and) be on a clear path toward consistent profitability," a banking analyst at Sanford C Bernstein & Co John McDonald said.
If the US does sell some of its Citigroup shares, taxpayers could get a profit. The government had converted its preferred shares into common stock at $3.25 a share and Citigroup's shares closed on Monday at $4.52.
"That means the government's 7.7 billion shares have gained about $9.8 billion," WSJ said.
The Treasury had acquired 7.7 billion Citigroup shares last week, in return for a chunk of its holdings of Citigroup preferred shares, which the Treasury received when it pumped $45 billion into Citigroup.
Citigroup has reported net income for the last two quarters, the company still is struggling with swelling loan defaults and continues to hold tens of billions of dollars of unwanted and risky assets.