Treasury Cancels Plans to Sell Citi Stake After Failed Equity Offering Stings Shareholders

The shareholders of Citigroup should be furious at the greedy and reckless actions of Citi's management in diluting their shares in order to obtain a freer hand in granting themselves fat bonuses.

Tonight's equity offering failed to bring in a sufficient price, serving up a significant 20% discount to existing holders of the stock.

And the de facto largest shareholders of Citigroup, the US taxpaying public and all holders of US Federal Reserve Notes, took quite a paper loss on their holdings because of Tim and Larry's miscalculations regarding the market's willingness to swallow more large chunks of questionable debt riddled equity from the US zombie banks.

Tim decided that because of this failed offering, the Treasury will cancel its plans to unload your 33% of Citi's shares, preferring to consider the quick flip a longer term investment, as failed trades are often wont to become.

And in retrospect, Timmy's decision to convert the government's preferred stock to common stock is looking to be exceptionally.... stupid, or fishy, or all of the above.

Never fear. We are sure that the Obama Administration can reach out to the Working Group on Markets to put a bid under those shares at some future date, perhaps with help from puffed up government estimates of the vitality of the US economy as a wind at its back.

Technically, Citi can pay back the TARP money from the proceeds. Can they have the gall to do that and pay themselves bonuses this year to boot, which is the basis for this exercise in dilution in the first place? This shows the farce that the Obama financial reforms really are. Nothing has changed except that big bank losses were transferred to the public debt, and the excess of the US financial sector continues with government support.

Financial engineering to maintain an imbalanced status quo, even with the mighty Zimbabwe Ben at the helm, is always and everywhere an economic morass, a Vietnam of moral hazard, and a political tarbaby of increasingly distasteful policy decisions. All for the sake of a wealthy few, the rapacious predatory class, an economic elite that traffics in betrayal and the breaking of oaths.

Such is the tangled web we weave, when first we practice to deceive.

Gentlemen, start your presses...

Reuters
U.S. delays its $5 bln Citi sale after weak pricing
By Dan Wilchins and David Lawder

NEW YORK/WASHINGTON, Dec 16 (Reuters) - The U.S. Treasury delayed a plan to sell its $5 billion of Citigroup Inc (C.N) shares after a stock offering by the bank attracted weak demand and priced at a much lower-than-expected $3.15 a share.

The bank sold $20 billion of stock and convertible bonds to repay funds it owes to the government so it can avoid the executive compensation restrictions that came with multiple U.S. bailouts.

But raising that capital came at a steep cost to shareholders, whose shares are worth 20 percent less than their closing level on Friday, before the bank announced its plan for repaying funds to the government.

"It's a terrific deal for Citigroup's managers, who can get paid more, and a terrible deal for shareholders. The company paid a huge price for this capital," said Sean Egan, principal at ratings agency Egan-Jones Ratings.

Citigroup was the third major U.S. bank to launch a multibillion-dollar share sale in December and the multitude of share sales likely dampened demand, analysts said.

"Buyers are in control of the process now," said Blake Howells, director of research at Becker Capital Management in Portland, Oregon.

The share sale price is less than the $3.25 price at which the government bought them earlier this year as part of an emergency rescue of the No. 3 U.S. bank, shrinking the paper value of the government's 7.7 billion shares to $24.2 billion. That stake was originally worth $25 billion and in October was worth nearly $40 billion.

Treasury "is not going to sell at a loss. That's the bottom line," a source familiar with the situation said.

The U.S. decided not to sell any shares at this time, and has agreed not to sell Citi shares for 90 days, the bank and the Treasury said. The government owns about one-third of Citigroup's shares.

The U.S. government still plans to sell its Citigroup shares within the next year, a Treasury spokesman said.

The government's decision not to sell shares was an about-face from Monday, when Citigroup said the government would sell up to $5 billion of shares alongside the bank's offering....

SP December Futures Daily Chart: Sideways

Citigroup has a stock offering coming out, perhaps tonight.

Option Expiration this week.

Comex could not stuff the metals even with a surprise margin increase in gold.

Stocks are drifting sideways on light volumes. Fundamentals mean little or nothing.
Its mostly arbitrage and technical trading right now by the predators, trying to bleed the specs.

Play the market you have. And perhaps the best position for now is out.
This is a good time for a breather. Next year could be a triple diamond run.

Corporate bonds look like a deathtrap, but anything can happen.

Time's Man of the Year: In Ben We Trust

It was thoughtful of Time to give this award to Ben on the day before his confirmation hearings.




Flashback: Ben's Award Winning Performance for Wall Street Begins....




Coming Soon: Ben Burns the Big Pile of Money...




Life after the Treasury's financial debacle was hard for Tim....



"Yeah, I eat it. It's good!... Need your taxes done?"

$38 Billion Tax Break Granted to Citigroup to Help Improve the TARP Results

Maybe it's a mistake. Did Timmy have time to run their return on TurboTax?

Well, at least it will make the results of the TARP program look better on paper if it drives up Citi's stock price by inflating their financial results. That's a plus, right?

I guess raising the credit card rates to 26% and free money from Ben was not enough to push Citi over its capital objectives in time for bonus season. We'll all have to really tighten our belts for this one.

Change you can believe in.

Washington Post
Citigroup gains massive tax break in deal with IRS
By Binyamin Appelbaum
Tuesday, December 15, 2009; 8:05 PM

The federal government quietly agreed to forgo billions of dollars in potential tax payments from Citigroup as part of the deal announced this week to wean the company from the massive taxpayer bailout that helped it survive the financial crisis.

The Internal Revenue Service on Friday issued an exception to longstanding tax rules for the benefit of Citigroup and the few other companies partially owned by the government. As a result, Citigroup will be allowed to retain $38 billion in tax breaks that otherwise would decline in value when the government sells its stake to private investors.

While the Obama administration has said taxpayers likely will profit from the sale of the Citigroup shares, accounting experts said the lost tax revenue could easily outstrip those profits.

The IRS, an arm of the Treasury Department, has changed a number of rules during the financial crisis to reduce the tax burden on financial firms. The rule changed Friday also was altered last fall by the Bush administration to encourage mergers, letting Wells Fargo cut billions from its tax bill by buying the ailing bank Wachovia.

"The government is consciously forfeiting future tax revenues. It's another form of assistance, maybe not as obvious as direct assistance but certainly another form," said Robert Willens, an expert on tax accounting who runs a firm of the same name. "I've been doing taxes for almost 40 years and I've never seen anything like this where the IRS and Treasury acted unilaterally on so many fronts."

Treasury officials said the most recent change was part of a broader decision initially made last year to shelter companies that accepted federal aid under the Troubled Assets Relief Program from the normal consequences of such an investment. Officials also said that the ruling benefited taxpayers because it made shares in Citigroup more valuable and asserted that without the ruling, Citigroup could not have repaid the government at this time. (Thank God. Just in time for prime bonus season - Jesse)

"This guidance is the part of the administration's orderly exit from TARP," said Treasury spokeswoman Nayyera Haq. "The guidance prevents the devaluing of common stock Treasury holds in TARP recipients. As a result, Treasury can receive a higher price for this stock, which will benefit the financial system and taxpayers." (George Orwell would have fun with this one. Let's give them a lot more money, so that when they give some back it will make our government program look better - Jesse)

Congress, concerned that the Treasury was rewriting tax laws, passed legislation earlier this year reversing the ruling that benefited Wells Fargo and restricting the ability of the IRS to make further changes. A Democratic aide to the Senate Finance Committee, which oversees federal tax policy, said the Obama administration had the legal authority to issue the new exception, but Republican aides to the committee said they were reviewing the issue.

A senior Republican staffer also questioned the government's rationale. "You're manipulating tax rules so that the market value of the stock is higher than it would be under current law," said the aide, speaking on condition of anonymity. "It inflates the returns that they're showing from TARP and that looks good for them." (And a nice accomplishment for Timmy's year end performance review - Jesse)

Read the rest here.