Investment banking giant Morgan Stanley (NYSE: MS) will be a significant beneficiary in the US government plan to sell off its stake in Citigroup (NYSE: C) over the course of 2010.  A contract between Morgan Stanley and the Treasury Department allows the company to charge a management fee for assisting in the sale of Citigroup shares and advising the government on additional bailout procedures in the future.

The Treasury Department recently chose Morgan Stanley to manage the sale process of its 7.7 billion shares in Citigroup.  The agreement between the government and Morgan Stanley, stipulates that the bank will receive fees of $0.003 and $0.0175 per share, which equates to a range of $23 million to $135 million of estimated fees on the transaction. (these figures reported here by the New York Times)  In addition to these fees, Morgan Stanley also stands to collect a $500,000 “administration fee” for its role.  You can review the contract between Morgan Stanley and the Treasury Department here, thanks to the New York Times.

The governments’ 7.7 billion shares represent approximately 27% of outstanding shares of Citigroup, which were acquired in an effort to stabilize the company by purchasing preferred shares under the Troubled Asset Relief Program (TARP).  The preferred shares were converted into common shares last summer, making the US government the largest stakeholder in Citigroup, and the Treasury Department indicated last month that it would begin divesting itself of its stake in Citigroup over the remainder of 2010.

There are justified fears that selling such a large stake in Citigroup will cause volatility in not only Citigroup shares, but also in the broader market.  To counter those fears, the Treasury Department stated during its announcement that it would conduct the sale in “various means in an orderly and measured fashion.”

Despite initial fears that the sale would result in a loss for the Treasury, it now appears the Treasury Department will likely realize a gain on the sale of the shares.  The shares were converted to common stock at approximately $3.25 per share, and Citigroup stock is currently trading well above the $4 per share mark, which if the price remains in this range, would equate to a gain in the billions of dollars.

The sale of Citigroup shares will end the short, but extremely controversial, stint of direct ownership of a bailed out financial institution during the US economic crisis.  The Obama Administration, the Treasury Department, and the head of the Treasury Department – Timothy Geithner, have endured blistering criticism over the TARP program and ownership of Citigroup shares, and likely look forward to putting this controversial period behind them.