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The risk-rewards ratio for


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shares was thrown further off kilter Monday as the stock roared higher again, grazing the $5 mark.

Citi has climbed more than 60% since the start of the quarter, when it was hovering near $3. Speculation has been rampant about when the

Treasury Department

may sell its common stock holdings ever since the Swiss government exited a 9% stake in


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last week for a $1.2 billion profit. If the U.S. government sold Citi at $5 per share, it would earn about $13.5 billion.

Of course, few believe the government will sell its 34% stake in Citi right now, or all at one time.

"That's a mammoth stake, and it's going to take a long time to unwind that position," says Curtis L. Lyman, managing director of the financial advisory firm HighTower Advisors. "I don't think they're going to telegraph it to the Street, and I think it's going to be a slow and gradual process. They're not going to come in and dump all their shares."

However, Citi's independence -- and the hurdles it will have to jump to achieve it -- are crucial to the firm maintaining the value momentum it has built over the past few weeks. Part of the reason Citi shares have gained ground at such a clip has been because of the preferred conversion itself.

"The government solved Citigroup's problem by converting," says Len Blum, managing partner of Westwood Capital. "The shares were languishing because Citigroup didn't have enough tangible common equity. To some extent, the rally in the stock was a self-fulfilling prophecy."

But now that the prophecy has grown legs, the risk-rewards scenario has shifted. Given Citi's lingering issues, the higher its stock sails, the riskier the gamble for ordinary investors.


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It's not a stock for the faint of heart," Sandler O'Neill analyst Jeff Harte said in a note Monday.

Harte maintains a buy rating on Citi nonetheless, believing that the loss cycle on its bad assets has already run its course. He also maintains that new talent put in place after a government-sanctioned review has the skills needed to revamp Citi into a tough competitor once again. But a growing chorus of others has become much more bearish as Citi shares have rallied more than 60% since the start of the quarter.

Rochdale Securities analyst Dick Bove, who issued an optimistic note on Citi a few weeks ago with a buy rating and $4 price target, was less enthusiastic about the firm and its ilk in a report on Saturday.

Bove notes that investors have been pouring money into lower quality firms at an alarming rate, believing the cheapest stocks at the bottom of the barrel have the most room to grow. But for that to happen, earnings growth must accelerate as quickly, a scenario that is not widely anticipated.

As a result, "it may be that these stocks are ahead of themselves at the moment," says Bove.

While the government may have saved Citi from collapse and improved its position, its lingering ownership is a reminder of the challenges Citi still faces.

A swath of troubled assets still hangs over the firm's future, housed in a division called Citi Holdings. The group has inked deals for profitable noncore assets like Nikko Cordial, Smith Barney and some overseas divisions relatively quickly. But it has not had much luck selling off less palatable items, like Primerica, CitiMortgage, CitiFinancial and a "special pool" of toxic assets that has a loss-sharing agreement with the government.

Furthermore, regulators are not eager to release their grip on the financial sector, which was on the verge of collapse less than a year ago. Even healthy banks with sufficient capital to buy back the government's preferred stake faced ample hemming and hawing over whether to allow them to do so, and at what price. Several, including

JPMorgan Chase

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Goldman Sachs

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Morgan Stanley

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American Express

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Bank of New York Mellon

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State Street

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Northern Trust

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U.S. Bancorp

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Capital One

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have successfully exited the bailout program, though

JPMorgan is still wrangling over the price of related warrants.

Selling off Citi would also have implications for banking peers in which the government still holds a significant stake, such as

Bank of America

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, or

Wells Fargo

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. If the government were to sell shares of Citi, which is considered the most troubled of the top four banks, but not in the other two, it would imply that BofA and Wells have even more issues. The result could be messy, and so government's exit strategy for all three will likely be coordinated in some way.

The Treasury Department has indicated it will prioritize stability over profits when deciding to exit its position in a financial firm. In other words, if the Treasury exits its Citi position, investors shouldn't view it as a federal sell recommendation. But neither should they view its long position as a federal buy rating.

"Very candidly, at these prices I am a lot more cautious about buying Citi than I was at $3 a share," says Lyman. "It could be that the stock price is a little bit ahead of earnings, but it certainly has been exciting for the investors who had the temerity to invest in Citi when it was at $3 a share."