Many predict that the U.S. Treasury will soon divest itself from Citigroup (NYSE: C), but an immediate sale of the government’s 27% stake in Citigroup may short change tax payers.
The federal government’s 27% ownership stake in Citigroup currently represents about $33 billion in value on the open market. If the U.S. treasury were able to sell all of its share at the current stock price of $4.31, it would net about $8 billion and profit off of its $25 billion investment, but its current share price is well below the stock’s 52 week high of $5.43.
There are also several signs that indicate Citigroup’s share price is headed in a positive direction. Analyst Richard Bove of Rochdale Securities expects bank stocks to trade at quadruple their current share price by 2012. In an interview with Business Week on March 24th, Bove commented that “The catalyst is the reduction in loan losses. That’s all that investors in banks care about.”
Many analyst have target prices for Citigroup between $6.50 and $8.00 per share. If the government were to hold out another 6 months to 1 year, the government could turn their $8 billion profit somewhere into a $15 or $20 billion profit. If Bove’s prediction is correct, the Treasury Department’s ownership share in Citigroup would be worth $131 billion, representing a $106 billion profit.
However, many would argue that the government is not in the business of investing in single stocks. Others would argue that there’s a possibility that Citigroup’s stock will decline and that the Treasury Department should get out while it’s ahead.
