Colin Barr

Following the money in banking, economics, and Washington

Treasury selling more Citi stock

July 23, 2010: 9:55 AM ET

The great Citigroup sellathon resumes today.

Treasury said Friday it will resume selling Citi (C) shares under a yearlong plan to liquidate a giant stake it acquired in bailing out the New York-based lender.

Treasury's stake has dropped but the stock hasn't

Treasury got 7.7 billion shares in Citigroup last year in return for aid extended during the financial crisis of late 2008 and early 2009. Last December, the government announced a plan to steadily sell those shares over 12 months, with the aim of liquidating the stake without hurting Citi's share price.

So far, the feds have succeeded in trimming their stake without hurting the stock. Citi is up 23% this year, at a time when most other bank stocks are down, while Treasury has reaped $10.5 billion through stock sales.

But the pace of the sales has been measured, thanks to prearranged sale plans that specify the price at which Treasury's broker, Morgan Stanley, may make trades. As a result,  Treasury finds itself with 5.1 billion shares to unload in just five months before the original share-sale window closes.

Even if Morgan Stanley manages to sell every share under the third round of prearranged sales running through Sept. 30, the government will still hold 3.6 billion shares currently worth around $14 billion at the end of the third quarter.

That suggests Treasury will either have to extend its sales into 2011, delaying an exit policymakers would dearly like to make, or sell a big chunk of its stake all at once, which risks hurting the stock price.

Treasury didn't immediately return a call seeking comment. Citi was down 1% Friday morning at $4.03.

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Colin Barr
Colin Barr
Senior Writer, Fortune

Colin Barr has covered finance for Fortune.com since November 2007. Previously he was a writer and editor for TheStreet.com, winning a 2006 Society of American Business Editors and Writers award for "The Five Dumbest Things on Wall Street," and for Dow Jones Newswires. He is a 1991 graduate of Penn State and lives in Port Washington, N.Y., with his wife Meena Bose and their two kids.

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