The Great Government Bailout of '08 made American taxpayers involuntary shareholders in many of the biggest names in banking, as Goldman Sachs (NYSE: GS), JPMorgan Chase (NYSE: JPM), and American Express (NYSE: AXP) all anted up shares in exchange for government loans. But now they want out, and the U.S. Government is happy to oblige ... at the right price.
Many bankers have already repaid their loans, but many more have not. As of May, Fifth Third Bancorp (Nasdaq: FITB), Regions Financial (NYSE: RF), and KeyCorp (NYSE: KEY) all still owed the U.S. billions in TARP funds. And then there's the biggest deadbeat dud of all: Citigroup (NYSE: C).
Liquidating a troubled asset
Citigroup repaid the Treasury $20 billion in December, out of $45 billion originally received. Treasury converted the remaining debt into a 7.7 million-share stake in the bank, and it has been gradually selling this off, capitalizing on Citi's rebounded stock price.
As of last month, Treasury had already cashed out 1.5 billion shares, selling 65 million shares per day and earning a 27% profit on the "investment." The plan was to maintain this pace as the Feds delivered a second, 1.5 billion-share bloc to Morgan Stanley for liquidation ...
But this plan has hit a roadblock. As Treasury reported this morning, Citi's slumping share price caused us to drastically slow the liquidation rate -- to 45 million shares daily. Whereas I originally predicted we would be down below 5 billion shares today, and be entirely quit of Citi by October, it appears we're falling behind, and likely to fall even farther behind as the government suspended sales of Citi shares yesterday to comply with the "blackout period" surrounding the announcement of Citi's Q2 earnings (due out July 16).
Foolish takeaway
I understand the desire to "dump this bank" and extricate ourselves from the TARP swamp as soon as humanly possible. But maybe taking a breather now, while the bull market takes a powder, isn't such a bad idea. Citi's shares aren't going anywhere, and if we can maximize taxpayer profits with a little patience ... well, that sounds like a virtue to me.
Meanwhile, what's it all mean to you, the investor? For the time being, the selling pressure created by Treasury's orderly exit should abate. If you think the stock's going to pop, now's a likely time for this to happen. On the other hand, if you're hoping to pick up shares at better prices, you might want to wait for the government to begin selling again.
At least, that's the way I see it. But what do you think? Take the Foolish Rorschach test, and give us your read on the chart up above, down below.
