Govt ready to sell off its stake in Citi! It's socialism! It's...wait a minute...

Thomas Veil

macrumors 68020
Original poster
Feb 14, 2004
2,435
5,462
OBJECTIVE reality
Res ipsa loquitur.

U.S. take if it sells its Citi stake to settle cost of bailout: $8 billion
By David Cho
Washington Post Staff Writer
Saturday, March 27, 2010; A01

Among the banks that rule Wall Street, Citigroup got a bailout that was bigger than the rest. Now the company is about to pay a king's ransom for its federal rescue.

The Obama administration is making final preparations to sell its stake in the New York bank, according to industry and federal sources. At today's prices, the sale would net more than $8 billion, by far the largest profit returned from any firm that accepted bailout funds, and the transaction would be the second-largest stock sale in history.

On paper, the government's 27 percent stake has grown in value to $33 billion. The size of the deal in the works has Wall Street buzzing. Only the stock offering by Japan's Nippon Telegraph and Telephone, which raised $36.8 billion in 1987, was larger, according to Thomson Reuters.

Leading financial firms, including J.P. Morgan Chase, Morgan Stanley and Goldman Sachs, are vying to be chosen as the deal's underwriters to gain the prestige of managing a historic stock sale as well as the fees from investors who buy the shares. To improve their chances, some banks, such as Goldman Sachs, are offering their services to the Treasury Department at almost no cost, industry officials familiar with the matter said.

The windfall expected from the stock sale would amount to a validation of the rescue plan adopted by government officials during the height of the financial panic, when the banking system neared the brink of collapse. A year ago, Citigroup's stock hovered around a dollar a share, and the bank's future seemed in doubt. On Friday, the stock closed at $4.31.

If the sale proceeds as planned, Citigroup would be able to cut nearly all of its ties to the $700 billion Troubled Assets Relief Program. Meanwhile, the administration could highlight the profit generated from the rescue of big banks.

"It's unprecedented to do [a stock sale] of this size right after the financial industry has been so battered," said an industry official who spoke on the condition of anonymity because he was not authorized to comment publicly. "It's just a very bullish sign."...

Yet many economists say that rescuing large Wall Street firms has come at a much lower cost than expected.
Oh dear. This has simply been a terrible news week for the right, hasn't it? :D
 

Ugg

macrumors 68000
Apr 7, 2003
1,985
15
Penryn
Shocking! What's the world coming to when the gummint makes money off loans to troubled banks! Raping and pillaging is sure to come next along with the very breakdown of our free enterprise system!
 

Desertrat

macrumors newbie
Jul 4, 2003
2
706
Terlingua, Texas
All the giant investment banks have been using your tax dollars to make beaucoup profits. They've had nearly-free money from the git-go, and the low Fed rate has enabled zero-risk profitability. Add to that the pumping of the market by the Plunge Protection Team, and the stock prices have been pushed upward from their well-deserved lows.

The spin is that the idea for the deal came from the White House. I really doubt that; it's an effort on Citi's part to get out from under any governmental control inherent in the ownership of shares. The SEC is much easier to deal with.
 

skunk

macrumors G4
Jun 29, 2002
11,745
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Republic of Ukistan
All the giant investment banks have been using your tax dollars to make beaucoup profits. They've had nearly-free money from the git-go, and the low Fed rate has enabled zero-risk profitability. Add to that the pumping of the market by the Plunge Protection Team, and the stock prices have been pushed upward from their well-deserved lows.

The spin is that the idea for the deal came from the White House. I really doubt that; it's an effort on Citi's part to get out from under any governmental control inherent in the ownership of shares. The SEC is much easier to deal with.
Every silver lining has a cloud, eh 'Rat? :rolleyes:
 

leekohler

macrumors G5
Dec 22, 2004
14,162
19
Chicago, Illinois
All the giant investment banks have been using your tax dollars to make beaucoup profits. They've had nearly-free money from the git-go, and the low Fed rate has enabled zero-risk profitability. Add to that the pumping of the market by the Plunge Protection Team, and the stock prices have been pushed upward from their well-deserved lows.

The spin is that the idea for the deal came from the White House. I really doubt that; it's an effort on Citi's part to get out from under any governmental control inherent in the ownership of shares. The SEC is much easier to deal with.
What is happening is what was planned in the first place. The government never intended to stay in the banking business permanently. I was against bailouts, but even I knew this.
 

Zombie Acorn

macrumors 65816
Feb 2, 2009
1,301
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Toronto, Ontario
I never thought the government was in it to completely take over the banks, I just didn't like the idea of them shoring up the banks so they could put a pile of dirt over this mess and keep on going. This problem isn't solved by a long shot, we just buried it in a shallow grave.

I can't remember if citi was the company we took a big hit with by trading preferred for common stock either..
 

Peace

macrumors Core
Apr 1, 2005
19,464
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Space--The ONLY Frontier
I never thought the government was in it to completely take over the banks, I just didn't like the idea of them shoring up the banks so they could put a pile of dirt over this mess and keep on going. This problem isn't solved by a long shot, we just buried it in a shallow grave.

I can't remember if citi was the company we took a big hit with by trading preferred for common stock either..
Being the big money guy here Zombie it would seem an $8 billion return on investment would be a good thing.

One can't dance around that fact.
 

Zombie Acorn

macrumors 65816
Feb 2, 2009
1,301
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Toronto, Ontario
Being the big money guy here Zombie it would seem an $8 billion return on investment would be a good thing.

One can't dance around that fact.
I would have to see total expenditures which I believe were in the range of $45B plus interest. We get the shaft if I recall correctly when we converted $25 billion in preferred shares to common. I don't remember exact details, but I remember being pissed when i heard the deal.

All of this is irrelevant however, the government should not have to be bailing out banks especially with the unsavory activity that was going on, the real bad part about this is that the housing market value was never realized.
 

TechieJustin

macrumors 6502
Nov 22, 2009
270
0
Pennsylvania, USA
When Lehman went under, I remember watching clips on CNN of people walking out with laptops, printers and other various computer equipment.
The problem was the IT equipment was leased, and not owned by Lehman.
 

splitpea

macrumors 6502a
Oct 21, 2009
984
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Among the starlings
Well, I hated the idea of corporate welfare in the form of bailouts (why is it that the right always endorses corporate welfare but condemns human welfare?), but it's a relief to see that at least it's turned a profit instead of a loss. One could hope that that profit would be returned to the taxpayer in the form of using the money in the budget such that it reduces the need to raise that amount of money via taxes.
 

NT1440

macrumors G5
May 18, 2008
12,140
13,983
When Lehman went under, I remember watching clips on CNN of people walking out with laptops, printers and other various computer equipment.
The problem was the IT equipment was leased, and not owned by Lehman.
+1 :p

The problem also is that many companies lease office space in buildings instead of owning it...
I'm confused, how do these "problems" relate to the topic at hand? :confused:
 

Desertrat

macrumors newbie
Jul 4, 2003
2
706
Terlingua, Texas
From the Doug Casey folks:

"The Treasury Department announced today that it plans to sell its 7.7 billion common shares of Citigroup (C) stock this year. In case you don’t recall, the Treasury acquired the stake last year after swapping $25 billion worth of preferred shares obtained during its $45 billion bailout of the troubled bank for common shares that were trading at $3.25 at the time."

Hold that number: $45 billion.

"If the sale of the Treasury’s entire stake took place today at the current stock price of $4.18 per share, it would generate a paper profit for the government of about $7.2 billion."

That profit would be based on the share price difference, $0.93 per share in profit for each of the 7.7 billion shares.

Trouble is, the trade was $25 billion worth of preferred shares; a swap. Okay, fine. But that $45 billion minus the $25 billion leaves us with $20 billion, right? So the actual net deal at this point in time would be $20 billion minus that $7.2 billion, or $12.8 billion of your tax dollars still invested in Citi. Still bailing, eh?

Next:

"...the government will still control warrants in the company and has the “right” to purchase more shares at a future date...the Treasury took $45 billion in taxpayer money for the bailout of Citigroup; you can bet the farm that no taxpayer will see any of that money back if the Treasury profits from the sale of the company’s stock."

Good bet.
 

Zombie Acorn

macrumors 65816
Feb 2, 2009
1,301
9,062
Toronto, Ontario
From the Doug Casey folks:

"The Treasury Department announced today that it plans to sell its 7.7 billion common shares of Citigroup (C) stock this year. In case you don’t recall, the Treasury acquired the stake last year after swapping $25 billion worth of preferred shares obtained during its $45 billion bailout of the troubled bank for common shares that were trading at $3.25 at the time."

Hold that number: $45 billion.

"If the sale of the Treasury’s entire stake took place today at the current stock price of $4.18 per share, it would generate a paper profit for the government of about $7.2 billion."

That profit would be based on the share price difference, $0.93 per share in profit for each of the 7.7 billion shares.

Trouble is, the trade was $25 billion worth of preferred shares; a swap. Okay, fine. But that $45 billion minus the $25 billion leaves us with $20 billion, right? So the actual net deal at this point in time would be $20 billion minus that $7.2 billion, or $12.8 billion of your tax dollars still invested in Citi. Still bailing, eh?

Next:

"...the government will still control warrants in the company and has the “right” to purchase more shares at a future date...the Treasury took $45 billion in taxpayer money for the bailout of Citigroup; you can bet the farm that no taxpayer will see any of that money back if the Treasury profits from the sale of the company’s stock."

Good bet.
Thank you. I knew something fishy was going on here.
 

Desertrat

macrumors newbie
Jul 4, 2003
2
706
Terlingua, Texas
Scroll down to the second article, although the first is quite worthwhile.

http://www.caseyresearch.com/displayCdd.php?id=383

Sign up. It's a free deal. One of the many reasons I listen to the Casey folks is that he started squalling about the oncoming financial debacle in 2003, way ahead of such esteemed souls as Greenspan or Geithner.

Peter Schiff is another who did the same. Schiff is the one who shorted Lehman for a gazillion dollars in profit.

The contrarian investors have done well, so far in this century. The mainstream folks such as our government, MSNBC, CNBC and such creatures as Jim Cramer have totally blown it.

I figure that folks who correctly analyze and then prognosticate correctly have far more credibility than those who mumble that they didin't see hard times coming.
 

sysiphus

macrumors 6502a
May 7, 2006
815
1
So much for the government cutting the strings from big business :/

Vindication by your own self...how interesting.

Oh, im sorry I didnt notice Zombie and Rat were different people...
What exactly is your point? Oh, I'm sorry, I was looking for something useful or constructive in your post. My mistake.
 

Desertrat

macrumors newbie
Jul 4, 2003
2
706
Terlingua, Texas
Sdashiki, how is pointing out real-world numbers "right wing crap"? How is acknowledging fact somehow "stroking"?

You would have us believe that agreement among right wingers is bad, but agreement among left wingers is good? Is that not a double standard? Often better-known as hypocrisy?
 

mcrain

macrumors 68000
Feb 8, 2002
1,768
11
Illinois
I figure that folks who correctly analyze and then prognosticate correctly have far more credibility than those who mumble that they didin't see hard times coming.
I'm going to prognosticate and point out something so that in a few years I can tell you that I told you so...

Things are about to start getting better. How do I know? History.

Take a look at the relationship of the blue text to the green numbers. We have blue today, we will have green soon.

Mark my words.

http://www.skymachines.com/US-National-Debt-Per-Capita-Percent-of-GDP-and-by-Presidental-Term.htm