Citigroup mulls cutting government stake

Troubled US banking giant, Citigroup Inc. is believed to be working on a proposal, which aims at reducing the 33.6-per cent stake the government is holding in the bank, in a move to lessen the government's involvement in its day-to-day operations, according to a report published in the Wall Street Journal.

It is believed that the Citigroup approached the US Treasury Department to initiate talks on reducing the government stake, which includes sale of at least part of the 7.69 billion common shares the Treasury is holding in the firm, as well as a possible multi-billion dollar new public issue to raise approximately $5 billion.

The government, which initially acquired preferred stock, which has a higher ranking than common stock, in the company, got part of them converted into 7.69 billion common shares last week. At the current market prices, the shares are valued at around $32 billion. Further to the proposed sale, the government will still hold a preferred stake in the company.

New York-based Citigroup was on the verge of collapse following the sub-prime mortgage crisis last year, and the US government stepped in to the rescue of the troubled banker by injecting $45 billion, and providing guarantees to the $306 billion of Citigroup's toxic assets.

The Treasury purchased Citigroup shares at $3.25 a share, and based on yesterday's closing price of $4.12, shows a gain of around 27 per cent.

Although the treasury has not made up a plan for the sale, the options for offloading of the huge chunk of shares include a gradual selling stretched over six to eight months or an ''auction'' along with other possibilities as well.