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Primerica IPO Bodes Well for Citi Stake Sale

Judging by the enthusiastic market response to Primerica's IPO last week, the government may see heavier demand for its Citigroup stake than previously thought.



) -- Judging by the enthusiastic market response to


(PRI) - Get Primerica, Inc. Report

initial public offering last week, the federal government may see heavier demand for its 27% stake in


(C) - Get Citigroup Inc. Report

than previously thought.

By any standard, the Primerica offering is a great success for Citigroup. It sold more stock than originally expected at a higher price than it was targeting, and then watched the value of its remaining 39% ownership in the Duluth, Ga., insurance and financial products marketer soar in the issue's first day of trading. The rally continued Monday with the stock up another 2.1% to $20.06 in recent trades, already more than 30% above its $15 debut price.

The performance lends credence to the theory that assets in Citigroup's so-called "bad bank" portfolio Citi Holdings may be worth more than commonly believed. That's a scenario that Rochdale Securities analyst Dick Bove is on board with, and he says it has ramifications for the Treasury stake sale, which is worth roughly $33 billion.

"Perhaps, more important than all these impacts

of the Primerica IPO, will be the realization that there is more value in Citi Holdings than investors' had expected to be the case," he told clients in a research note on Monday. "Further, it now appears that there is a public market available for the sale of assets like Commercial Credit and The Associates, and possibly other smaller businesses."

Bove, who has buy rating and $5 price target on Citigroup shares, expands upon that logic, saying the potential public demand for such assets means the book value of Citigroup is understated and thus "buyers for the stock that the government is about to sell are likely to line up."

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That view is a change from the

general perception

just months ago that the stake represented an overhang that would cap appreciation in the common shares until the government was able to exit. But Citigroup's stock took off in March amid news of a few high-profile investors establishing stakes and the growing perception that loan losses for the big banks have peaked, and the Treasury is now sitting on a tidy profit of more than $7 billion since it holds the shares at $3.25 each, but as recently as mid-February it was underwater.

To illustrate just how well the Primerica offering went for Citigroup, Bove points out the company will now have a higher value on its remaining 39% stake in the company than it did when it held the entire private entity at book value.

Although so far the Treasury has only said that it's planning to sell the Citigroup stake sometime this year, Bove now expects to the stock to hit the market "sooner rather than later." In the days following the Treasury's confirmation of its plan to sell the 7.7 billion share stake on March 29,


reported that

Morgan Stanley

, which is acting as the Treasury's adviser, had received $5 billion in reverse inquiries about purchasing Citigroup stock. How the Treasury structures the sale is still being determined but block transactions will surely play a role, and evidence that any part of Citigroup is undervalued will allow the government to drive a harder bargain on any discount to prevailing market prices it's willing to give.

Citigroup shares were up 1.7% to $4.25 in afternoon action on volume of nearly 240 million. The company is slated to report its first-quarter results on April 19. The current average estimate of analysts polled by

Thomson Reuters

is for a breakeven performance with revenue of $20.92 billion. Bove is expecting a loss of a penny per share in the March quarter.


Written by Michael Baron in New York