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Bureaucrats Score Big at Citigroup, General Motors: David Pauly
Dec. 9 (Bloomberg) -- Turns out the meddlesome bureaucrats whom bailed-out bankers and carmakers complained about so much were pretty good managers.
Intrusive U.S. officials this week sold the last of the government's common shares in Citigroup Inc. -- and now show a profit of about $12 billion from the 2008 rescue of the nation's third-largest bank in terms of assets. Last month, against the odds, these same irksome folks pulled off an almost perfect initial public offering of General Motors Co., recovering about $13.5 billion for taxpayers.
The government's remaining 2.4 billion Citigroup shares were sold for $10.5 billion. The price was $4.35 a share, 10 cents below the market price. The discount proved wise. The bank's stock rose after the sale, easing concern the trade -- totaling 8.3 percent of the bank's shares -- would depress the stock price.
In the end, the U.S. Treasury had sold all of its 7.7 billion Citigroup shares at an average price of $4.14, making about 89 cents a share on the transactions. The total profit on the shares came to $6.85 billion. The U.S. has also received preferred stock dividends and other money from the bank.
Taxpayers stand to make more from their Citigroup investment. The government still owns warrants to buy 465 million of the bank's shares and $800 million of preferred securities.
Pandit's Response
Citigroup Chief Executive Officer Vikram Pandit, who has been working for $1 a year during the crisis, did have the grace to say he was "thankful" for the government's support.
Washington-based bureaucrats handled the GM deal adroitly from the outset though the IPO market was unpromising. GM executives and their government overseers hoped the IPO would raise several billion dollars even though no other public offering this year raised even $1 billion, according to Bloomberg data. In the same week that GM had its stock sale, Harrah's Entertainment Inc. canceled its IPO.
Government officials forced underwriters to cut their fees to less than 25 cents a share. By contrast, the underwriting costs in the IPO of Booz Allen Hamilton Holding Corp., the consulting firm, was a bit more than $1 a share.
Then the folks from Government Motors boosted GM's common price offering to $33 a share, after earlier estimating about $29.
Flippers Squelched
That $33 price was a boon to the taxpayers. It meant they got most of the money rather than speculators who might have benefited from a big gain after the IPO.
The stock rose to $35.99 during the first day of trading last month and closed yesterday at $34.45.
Taking GM public eventually brought in a total of $23.1 billion. The Canadian government and the UAW Retirees Medical Benefits Trust also sold common shares and General Motors itself sold preferred stock.
Not bad for government work. Maybe if these companies had hired some meddlers like these a few years back, disaster might have been averted.
(David Pauly is a columnist for Bloomberg News. Opinions expressed are his.)
To contact the writer of this column: David Pauly in Normandy Beach, New Jersey dpauly@bloomberg.net
To contact the editor responsible for this column: James Greiff at jgreiff@bloomberg.net
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