Treasury Stumbles Selling Citigroup Stock

The U.S. government is in danger of missing its deadline of divesting all of its Citigroup(C) shares by the end of the year after a fall in stock market trading volumes prompted authorities to slow down sales in July and August.

The lull could prompt the U.S. Treasury, which has a stake of about 17% cent in Citigroup, to consider a share offering instead of selling the stock in small quantities in the market, according to bankers and analysts.

"The sales of Citigroup stock have slowed way down in July and August ... The U.S. Treasury will not finish its share sale by ... the end of the year," said Linus Wilson, a professor of finance at the University of Louisiana. "The only option for the Treasury if it wants to exit Citigroup before the year-end seems to be to conduct a large secondary offering of the stake."

The government only seeks to sell shares equivalent to a small percentage of the overall trading volume in Citigroup to avoid depressing the price.

By the end of August, less than half of the government's 7.7 billion shares in Citigroup had been sold, with the average number of shares sold per day falling sharply, the latest official data show. The Treasury has until Thursday to complete the sale of 1.5 billion shares before entering a "blackout period" ahead of Citigroup's third-quarter results.

Missing the December deadline would not have a great financial impact on the Treasury, which has already made a profit of more than $2 billion on the Citigroup investment. But the delay would be emblematic of the difficulties faced by the authorities as they extricate themselves from the aid doled out during the crisis.

Two years after Washington injected billions of dollars into banks, insurers and carmakers through the Troubled Asset Relief Program, Citigroup and the insurer AIG(AIG) remain the two largest groups yet to repay taxpayers.

The government's continued involvement complicates Citigroup's efforts to convince investors its troubled past is behind it.

Citi declined to comment. The Treasury, which has said the Citigroup sale would depend on market conditions, declined to comment. Morgan Stanley, which is selling the shares on behalf of the government, did not respond to a request for comment.

Citigroup shares have risen nearly 18% this year but volumes have fallen in line with the market during the summer.

By the end of August, Treasury has sold 3.5 billion of the 7.7 billion shares it received last year when it converted $25 billion worth of preferred shares, netting a profit of more than $2.6 billion, according to professor Wilson. The shares were part of a $45 billion in rescue aid received by Citigroup during the crisis.

The sale of the latest tranche began on July 23 when Treasury said it had authorized Morgan Stanley to sell 1.5 billion shares in the market. By the end of August, though, the authorities had sold just 900 million. The average number of shares sold in the period was about 33.5 million compared with a peak of 66 million a day in April and May.

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