Citi Scrambles to Reduce Government Stake

Citigroup wants out, or at least partially out.

The bank is exploring a scheme to reduce the government’s 34 percent stake by raising private capital and convincing the government to sell some of its ownership stake, the Wall Street Journal reports.

Officials at the bank tell the Journal that they talked with a Treasury Department official over the weekend, and that the official told them the government has no problem with Citi paying back the government, as long as the bank raises sufficient capital first.

The Treasury Department owns 7.7 billion shares of Citigroup stock and has poured $45 billion into the bank.

What the government does with its Citigroup stake could be seen as a measuring stick for how it wants to extricate itself from the banking system, the Journal reports. Private capital has returned to the markets, and banks including Citi have had profitable quarters. But there are still concerns about the overall health of several institutions including Citi.

Defaults on loans by Citi continue to rise, and the bank holds billions in bad debt.

So the government will have to make a determination just how healthy the bank is before deciding how willing it is to pull its capital out of the bank.

Citi officials studying ways to shrink the government’s stake in their bank have talked to the Journal about issuing as much as $5 billion in new shares while the government sells some of its stock in the bank. They want to do this by the fourth quarter, but only if the government agrees to sell some of its shares.