Institutional stock ownership in Citigroup (NYSE: C) has dropped significantly as major investment units have pulled out of the firm. Currently, only 20% of Citigroup’s shares are owned by institutional investors, but an exit of the government’s ownership in Citigroup could lead to a re-entry by pension funds and mutual funds.
Currently the U.S. government owns a $20 billion stake in Citi trust preferred securities and 34% of the company’s common stock, which many analysts believe is a significant cause for concern for institutional investors, because of the possibility of Citigroup issuing new shares that would dilute existing shareholders. If the government divested itself from Citigroup, most of that fear would be eliminated.
Several reports have surfaced this week indicating that Citigroup is in negotiations with the government to pay back its remaining TARP debt, although the details have not been released to the public. If Citigroup (NYSE: C), does repay the its debt related to the Troubled Asset Relief Program, there’s still the concern that the U.S. owns a substantial common stock portion and has a backstop on billions worth of Citigroup debt.
If Citigroup (NYSE: C) can come to terms with the government regarding its TARP repayment and come up with a plan for the government to sell its 34% equity stake, only then will institutional investors be ready to return to Citigroup in a major way.
