Selling Citigroup: A Simulation of the U.S. Treasury’s $37 Billion TARP Share Sale
Review of Business, Vol. 31, No. 2, pp. 3-14, 2011
26 Pages Posted: 6 May 2010 Last revised: 29 Mar 2012
Date Written: May 4, 2010
On April 26, 2010, the U.S. Treasury had 163 trading days to sell a $37 billion dollar stake of 7.7 billion shares in Citigroup. Citigroup’s stock price on April 23, 2010, was well above the U.S. Treasury’s “break even” price of $3.25. The U.S. Treasury announced that it planned an at-the-market sale over about six months. This paper uses Monte Carlo simulations to argue that the U.S. Treasury bore a 17 percent chance of not completing the sale if it refused to sell its shares at a loss and sold no more than 50 million shares per day. The author argues the government could have had less downside and idiosyncratic risk by selling a significant fraction of its holdings in an underwritten offering early in the selling period.
Keywords: Bailout, Banks, Block Trades, Brownian Motion, Citigroup, Dark Pools, Electronic Trading, Exchange Offers, Monte Carlo, Privatization, Simulation, Troubled Asset Relief Program, TARP, Secondary Offerings, SEOs, U.S. Treasury, Underwriting
JEL Classification: G01, G13, G21, G28, G32
Suggested Citation: Suggested Citation