Citi hammered after weak take to share offering

NEW YORK: Citigroup stock took a beating on Wall Street Thursday after weak demand for a share offering that prompted the US government to delay the sale of its stake in the bailed-out banking giant.The new woes for Citi, which received the biggest bailout of any US bank at some US$45 billion, led to fresh turmoil in financial markets, undermining confidence in a recovery for the ailing sector.

NEW WOES: A man at a Citibank branch at the US bank Citigroup world headquarters on Park Avenue, in New York. — AFP photo

Citi shares tumbled 7.25 per cent to close at US$3.20 and have plunged some 20 per cent over the past week.

The market action came after Citi said late Wednesday its public offering — described as the largest offering in US history — saw prices of US$3.15 per share.

This was well below the average price of US$3.25 paid by the US government as part of a multibillion-dollar bailout under the Troubled Asset Relief Programme (TARP).

That prompted the Treasury to delay its plans to divest an initial five billion dollars.

Citi said the US Treasury “decided not to sell any of its shares” in connection with the offering and would extend its “lock-up period” on the sale of its equity stake to 90 days from 45 days.

The US government earlier this year converted some of its preferred shares to take a stake of common stock worth around one-third of the bank.

“The clear mark of disappointment in Citigroup’s offering is the US Treasury’s decision not to sell its US$5 billion of Citigroup shares due to the low price,” said Patrick O’Hare at Briefing.com.

“So, Citigroup looks ready to get out from under TARP, but its desire to do so came at a steep price for its shareholders, including US taxpayers.”

Analyst Joe Weisenthal at the financial website Business Insider said the underwriters “had to step in and snap up shares to prevent the stock from going below three dollars.”

If the stock does fall below three dollars “it will signal that the decision to let Citi repay TARP was either woefully early or woefully late,” he added.

Jon Ogg at 24/7WallSt.com described Citi’s move as “the wrong offering, at the wrong time, and at the wrong price.”

“We have worried about the major dilution this would create (for shareholders), and the company better hope and pray that it never finds itself in need of further government or private help ever again,” he added.

Herbert Allison, the assistant Treasury secretary for financial stability, told a congressional hearing Thursday the government still intends to divest its Citi shares over time.

“We expect to sell these common shares in an orderly fashion within six to 12 months subject to an initial 90-day ‘lock-up’ period after the secondary offering,” Allison said.

Citigroup’s share offering had earlier been hailed as a sign the banking sector was closer to standing on its own.

By paying back the TARP funds, Citi will no longer be deemed to be a recipient of “exceptional financial assistance” in 2010 that would subject its executives to compensation limits, company and Treasury officials said. – AFP