Citigroup takes hit after Treasury ditches sale

SHARES in Citigroup slumped yesterday after the US Treasury backed out of plans to sell part of its stake in the troubled bank.

Citigroup sold $20bn of stock and convertible bonds in order to repay bail-out funds to the government but raising the capital came at a steep cost to shareholders. Weak demand led to a much lower pricing than expected.

The Treasury had planned to sell its $5bn stake but backed out after the $3.15 offering price was well below the $3.25 per share price it paid for its investment. Analysts said this would have been a politically unpalatable loss.

Herbert Allison, Treasury assistant secretary, yesterday told lawmakers that the Treasury would sell its stock in Citigroup to "achieve the best possible price for the American public”.

He added sales would commence after a 90-day lock up period expires.

Allison said the government was showing a "small profit" on its 34 per cent stake in Citigroup based on the share value and dividends that were accruing.

Citigroup's handling of the fundraising has damaged Wall Street's confidence in the bank.