treasury delays citigroup sales (insurance, borrowing, buying, sell)

[floridasandy]

UPDATE 3-U.S. delays its $5 bln Citi sale after weak pricing

NEW YORK/WASHINGTON, Dec 16 - The U.S. Treasury delayed a plan to sell its $5 billion of Citigroup Inc 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.

couple this with the fact that citigroup gets a big tax break courtesy of the taxpayers:
The Washington Post is reporting that the federal government has quietly decided to exempt Citigroup (C) from a large future tax bill in allowing it to exit the TARP program. This is a backdoor bailout worth billions and is an outrage that demonstrates the lengths to which government will go to gift these organizations taxpayer money.

[floridasandy]

let me add an interesting observation:
Treasury borrowing is not the only borrowing pressure coming from the U.S. markets. Other huge government-sponsored borrowing schemes are also underway.

From Antal Fekete's latest article:

"If you examine the latest measures initiated by the Geithner Treasury, there is indeed reason for alarm. Treasury Secretary Timothy Geithner openly invites
private investors to speculate, risk free, in buying the toxic assets of the banking system. The risks, should they materialize, are covered by pledging, most
improperly, the assets of the FDIC. If the gamble succeeds, private investors may keep the assets they have bought on the cheap. Otherwise the FDIC will pick up the tab and will reimburse investors for their losses.

Let me ask the only relevant question. Why would private investors, in their right mind, speculate in toxic assets which have no market, given the fact they can already speculate, directly and risk-free, in the “ultimate” asset that is held in the guaranty fund for those toxic assets, that do have a market in which the troubled banks compete with overseas central banks for the bonds of the U.S. government? The Geithner-plan is a hare-brained plan, and is bound to fail."

Professor Fekete draws an important parallel here. It appears to me that the Geithner plan is an attempt to use taxpayer backstopping to convert toxic MBS into risk-free Treasury-like securities.

In effect, the Geithner plan turns taxpayers into sellers of CDS insurance on toxic MBS, except we don't even get to collect the premium. It takes a wall street banker to come up with something like this. (richmond)