The news is simple, in a rush to raise capital and reduce government control (to pay higher compensation) Citibank priced an offering “in the hole” as they say and in the process spooked the treasury out of selling their 34% stake.
We’ve seen most of the informed commentary that suggest the entire episode was “pathetic” and bad for stockholders. Although the transaction process was a mess (isn’t that one of their core businesses?) it’s not the big story.
The fact is the massive Treasury stake is now a major overhang and they have basically said that they are ready to sell but at a slightly higher price than the recent deal. In other words you have a monster seller sitting above the stock waiting for a price.
Now it’s possible that results will continue to improve at Citi and eventually there will be enough demand to “clear out” the supply but we are talking about one hell of a large supply of stock.
There could be some interesting trades here knowing all this. For example selling calls above where the Treasury would want out could be a safe bet given the right options strategy. (See related post on options as a strategic investment.)
[Disclosure: We have no position in Citi.]