Big price drop for Citigroup shares

Shares in Citigroup Inc. fell 7% on Thursday as the struggling bank botched its attempt to free itself of the federal government’s clutches.

Although Citi was able to raise $17 billion in fresh capital, it could only do so by selling its stock at $3.15 a share, or a dime less than the feds paid to acquire its 34% stake in the bank earlier this year. Rather than take the loss, the government said it would hold its stock for now, although its stake is now watered down to 26%.

“Shareholders, most prominently including the American taxpayer, have been needlessly diluted,” fumed Oppenheimer & Co. analyst Chris Kotowski, adding that the government saw its stake in Citi reduced without a single dollar being raised for the U.S. Treasury. “Value has been permanently lost.”

While the dilutive stock sale is bad news for taxpayers, it could be good for Citi employees. Now that the bank has repaid its bailout money, Citi is free of the restrictions on pay it had to accept because it received “special assistance” from the government.

The government still plans to unload its 7.7 billion Citi shares over the next 12 months. Mr. Kotowski observed that the government should have sold its stake between August and November, when Citi shares traded around $4 each. That would have resulted in a profit for taxpayers and freed Citi of the perception that the company is being run, in Mr. Kotowski’s words, “more on Washington logic than on business logic.”

[This story first appeared in Crain’s New York Business, a sister publication to Investment News.]

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