Uncle Sam to Sell 20% of its Citi Stake

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Note: We maintain a public portfolio of stocks I actually own, including the number of shares I bought, when I bought them and the price I paid. This isn’t every stock I own: I have many in my IRA, and a few in my SEP retirement plan. But last year I started this new and completely separate portfolio for use as a tool to periodically talk about stock investing. THESE ARE NOT STOCK RECOMMENDATIONS! I do my research: you do yours.

As you may have seen in this post, I bought 2,000 shares of Citigroup stock on Friday, 4/16/10 at $4.59/share. (On the same day I also bought 1,000 shares of Huntington Bancshares at $5.46)

Today the government announced that they intended to sell about 1.5 billion of their 7.7 billion shares of Citi, or about 20% of their position. While the impending sale of this huge stake may have a short-term negative impact on the stock price (when increasing supply meets stable demand, prices drop) the longer term implications are favorable. That’s because without the negative overhang of these sales, Citi stock will potentially attract more buyers: something that should create more demand than supply, thus increasing prices.

The sales are also good news for American taxpayers: Uncle Sam got in at $3.25 in 2009. The stock closed Friday at $4.86. That would give the taxpayers close to a 50% one-year return. Not bad.

Btw, the reason the US government finds itself in the unusual position of private stockholder is that during the banking crisis Citi received $45 billion of bailout money from American taxpayers. Uncle Sam ultimately converted $25 billion of that loan into the common stock he now holds. The remaining $20 billion was repaid by Citi in December.

As for the implications of all this on my Citicorp investment: while nobody knows the exact timing of the government’s sale of Citi stock, everyone knows they’re coming. So I was aware of this when I bought the stock. If the sales announcements make the stock drop, I’ll likely buy more.

You can read more about the news in this USA Today article.

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