Citigroup Shares Rise on U.S. Treasury's Sale Announcement

Treasury sells stake for $12 billion profit

Citigroup Inc. shares rose Tuesday after the U.S. Treasury said it was selling its remaining 2.4 billion-share stake in the firm, ushering in an expected wave of institutional buying.

Around noon in New York, Citi shares were up 3.8% at $4.62, according to The Wall Street Journal.

The paper notes the sale means the stock will be eligible for greater ownership in major indexes. The Standard & Poor's 500 didn't count the Treasury Department's shares in its current weighting of Citi, said David Trone, an analyst at JMP Securities. By the agency exiting the investment, the index will increase its weighting of Citi, which in turn means index mutual funds, exchange-traded funds and institutions will buy Citi shares.

Recent regulatory filings put institutional ownership of Citi common shares at 48.8%, according to Sandler O'Neill. Assuming all the buyers of the Treasury Department's last sale of 2.4 billion shares are institutions, that percentage would rise to 56.5%, still well below the average large-capitalization bank institutional ownership of 73.9%.

"The exit removes one of the primary hurdles to increased institutional ownership," wrote Sandler's senior bank stock analyst, Jeffrey Harte.

The Journal reports the U.S. government bought 7.7 billion shares at $3.25 a share in exchange for a $25 billion infusion of rescue funds. It began selling the stake earlier this year. After completion, at an average sale price of $4.14 a share, the government will have gotten a 27.4% premium on its investment, noted Sandler O'Neill.

The sale was priced Monday night and is expected to be completed by Friday. Morgan Stanley is the bookrunner.

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