Why Geithner Should Sell Citi Stake This Week

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Includes: C, KBE, WFC, XLF
by: Linus Wilson

The chorus of positive voices about Citigroup (NYSE:C) has been rising throughout the last couple weeks. Luckily for taxpayers their lockup expires on Tuesday, March 16, 2010. If Tim Geither and company are not completely asleep at the wheel, they would have already hired an investment bank to do a coordinated sale of at least $5 billion of that stake—I would prefer more—before the markets open on Tuesday. There is plenty of room to allow institutional investors a slice of Citigroup.

The U.S. Treasury squandered a good opportunity to exit at least part of their stake by not selling it in the summer and fall. All they have to do is sell at above $3.25 a share to make a profit. They declined to take a modest loss on a $5 billion stake in December. In December, Citigroup completed the largest common equity offering in history of over $19 billion right before the Christmas holiday in the same week that Wells Fargo (NYSE:WFC) sold over $12 billion. Not selling the government’s stake at a loss may have been the right move in terms of signaling, but to hesitate today when the shares are at about $4 will open the administration to all kinds of criticism.

It is clear from the diagram below that the U.S. Treasury has squandered many opportunities to exit its Citigroup stake since it converted the taxpayers' $25 billion worth of preferred stock into common stock at the end of July.

We’ll see if the U.S. Treasury drops the ball once again.

Disclosure: I only have long positions in broad based index funds.