On Tuesday, The U.S. Treasury Department announced that it had priced an offering of Citigroup Inc.'s C) subordinated notes. Through this, the Treasury will completely offload its holding in the company. Notably, Citi was one of the major financial organizations rescued under the government's Troubled Asset Relief Program (TARP) for $45 billion in 2008.
The Treasury anticipates that the sale of Citi's subordinated notes will result in proceeds worth $894 million. This will result in the U.S. taxpayers gaining an overall return of roughly $13.4 billion on the initial investment.
Earlier in 2009, the government rescued Citi by sharing the prospective losses of the company on loans worth $301 billion. In return, both the Treasury and the Federal Deposit Insurance Corp. (FDIC) received preferred stocks that were afterwards converted into trust preferred securities. During late 2009, the loss-sharing deal was terminated by Citi, without the government incurring any loss.
As part of the cessation, the FDIC agreed to transfer $800 million worth of trust preferred securities to the Treasury. In Dec 2012, after the maturity of the debt associated with the FDIC's Temporary Liquidity Guarantee Program, the FDIC transferred the securities to the Treasury. Therefore, the Treasury now returned these securities to Citi in exchange of subordinated notes worth $894 million.
The aforementioned deal is a part of the Treasury's incessant efforts to offload the TARP's bank investment programs, which stabilized the economy during a major financial crisis in 2008. The offloading of stake will also result in gains for taxpayers.
The Treasury's stake-offloading initiative is a positive for Citi as it entirely removes the government overhang on the stock. Nevertheless, Citi's core business is progressing well and the international business is gaining momentum, though the earnings in the coming quarters is expected to remain pressured following the stringent as well as uncertain regulatory environment and the shrinking of its revenue base due to the Citi Holdings business reduction.