NEW YORK - Citigroup Inc. said yesterday that it was selling a huge chunk of its stock at a steep discount to raise the cash it needs to repay bailout funds and free itself from government support.
But the government backed out of selling any of its 34 percent stake in the bank, apparently because of the tepid investor response and the weak price garnered by the $20.5 billion equity offering - described by Citigroup as the largest in history.
Citigroup said it was selling 5.4 million common shares at $3.15 apiece, an 8.7 percent discount to yesterday's closing stock price. The bank is also selling 35 million tangible equity units, which can be converted into common stock at a later date, for $100 each.
Citigroup's shares dropped 25 cents, or more than 7 percent, to $3.20 in after-hours trading.
"It's obviously disappointing," Edward Najarian, an analyst at International Strategy and Investment Group in New York, told Bloomberg News. "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."
Citigroup, of New York, is selling the shares as part of its effort to repay $20 billion in federal bailout funds. The bank announced the offering Monday, shortly before Wells Fargo & Co. announced plans to raise capital through a public stock offering to pay back its own bailout loan. The San Francisco bank priced a $12.25 billion offering of common stock Tuesday.
In total, Citigroup received $45 billion as part of the Troubled Asset Relief Program, or TARP, to help it manage through the credit crisis as it suffered under the weight of souring loans.
Citigroup had to pay back only $20 billion because the remaining $25 billion was converted into a 34 percent ownership stake in the bank earlier this year. The government paid $3.25 a share for its stake, which means it would have lost 10 cents a share in the offering.
The Treasury did agree to wait 90 days after the completion of the offering to sell any of the 7.7 billion common shares that it owns. The government has said it plans to sell the entire stake next year.
Even though the government has decided not to sell any of its stake at this time, Citigroup said that once the offerings were complete and it repaid the $20 billion, it would no longer be deemed a recipient of "exceptional financial assistance" under TARP, and therefore would not be required to follow strict executive-compensation rules that are contingent with the bailout funds.