The huge government bailout of banks during the height of the banking crisis was the cause of much concern and hand wringing. Among political types, the debate centered around the theoretical concepts of whether or not the government should be involved in propping up banks and whether or not such involvement constituted something “socialist.”
Whenever the political theories involved, as a more practical matter, there were some very real concerns about how and when the government might be able to undo some of the things they had done. One example was the government’s bailout of Citigroup. The Treasury provided $25 billion to the banking giant. In exchange, it got an enormous amount of preferred stock. At the peak, the U.S. Treasury owned approximately 27 percent of Citigroup stock.
This unprecedented arrangement left some very difficult questions up in the air to be determined later, not the least of which is how does someone — the U.S. Government included — get out of a 27 percent position in a major financial institution without causing more problems?
Thankfully, recovering markets and an improving situation at Citigroup have made it unnecessary to answer such questions under difficult scenarios. Rather, the Treasury has been selling off the shares of Citigroup stock it owns over an extended period of time. The shares have been mopped up by the market. While all of those shares do have an effect on the stock and the markets, it hasn’t been something that sticks out, and so things have gone on as normally as possible.
An interesting milestone is approaching for the TARP program regarding the Citigroup bailout.
In addition to the $25 billion cash the government traded for preferred stock, the Treasury paid $3.25 per share to convert the preferred stock into regular common stock. In total, the Feds are into Citigroup for about $45 billion.
So far, sales of Citigroup stock have generated $41.6 billion. That means that the government need only earn approximately $3.4 billion on the remaining shares it owns in order to “break-even”. Any amount above and beyond that actually ends up generating a profit for the government on its investment in Citigroup. That shouldn’t be too hard considering it was just announced that during the 4th quarter, they have authorized up to 1.5 billion shares to be sold.
With Citigroup stock trading for north of $4 per share, this quarter’s sales could cross the mark and turn the Citigroup bailout into a profitable investment for the government.
Say what you want about the politics and theory of the matter, when was the last time you heard of the United States Government actually turning a profit on something it did “for the good of the country?”