The U.S. Department of the Treasury announced today intentions to sell trust preferred securities (TRUPS) it acquired from Citigroup (C) during the bailout in 2009. The sale will constitute a complete net profit gain under the Asset Guarantee Program. Citi will not receive any of the proceeds. The Asset Guarantee Program is part of the Emergency Economic Stabilization Act and allows the Treasury to hold assets for financial institutions critical to the function of the nation’s financial system for a premium. In January 2009, the Treasury alongside the Federal Deposit Insurance Corporation, the Federal Reserve and the Office of the Comptroller of the Currency, signed a shared-loss agreement with Citi to absorb potential losses of $301 billion. Citi agreed to pay a dividend payment of 8% on the government preferred stock. The TRUPS the Treasury is now trying to sell were part of that agreement. The agreement also included 7.7 billion shares of Citi’s common stock. Citi terminated the shared-loss agreement in December 2009 following the completion of a $20 billion securities offering and repayment to the Troubled Asset Relief Fund, which canceled $1.8 billion worth of TRUPS originally allocated to the government. The Treasury kept $2.2 billion of the premium which was originally $4 billion in securities. It said that, because the Treasury was “never required to make any payment under the arrangement and has no further obligation to do so, all proceeds from the sale will constitute a net gain to the taxpayer under the [AGP] program.” The offering does not include $800 million in TRUPS held by the FDIC. Those assets are required to be turned over to the Treasury unless they incur any losses on debt of Citigroup guaranteed by the FDIC under the Temporary Liquidity Guarantee Program. It also doesn’t include the warrants for Citigroup’s common stock issued under the AGP or the 7.7 billion shares of government common stock, which the Treasury has been disposing of separately. The Treasury currently owns about 18% of Citigroup’s shares. BofA Merrill Lynch, JPMorgan, Morgan Stanley, UBS Investment Bank, and Wells Fargo Securities will act as joint lead managers for the offering. Citigroup Global Markets Inc. will act as global coordinator but not as an underwriter or a sales agent. Write to Christine Ricciardi.
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