Morgan Stanley to handle sale of U.S. stake in Citigroup

The Treasury Department announced Monday that it had selected Morgan Stanley to handle the sale of its massive stake in Citigroup, spurning an offer from Goldman Sachs, which was willing to do the job at virtually no cost to the federal government.

Some government officials had concerns about giving such a prominent deal to Goldman Sachs because the firm has come under fire from lawmakers and the news media for its role in the financial crisis, according to a government source. The source spoke on condition of anonymity because of the sensitivity of the matter, and Goldman Sachs declined to comment.

A Treasury spokeswoman said the terms of the Morgan Stanley agreement would be made public this week.

The sale of the government's stake would be the second-largest stock sale in history. It generated tremendous interest among Wall Street's leading firms vying to underwrite the deal. Some, including Goldman, had offered to take the job at minimal cost to enhance their chances of getting such a prestigious opportunity.

Only the stock offering by Japan's Nippon Telegraph and Telephone, which raised $36.8 billion in 1987, was larger, according to Thomson Reuters.

As of Monday's close of trading, the government's 27 percent stake in Citigroup was worth $32 billion on paper and would produce a profit of more than $7 billion if sold immediately.

The Treasury, however, plans to sell the stock in increments over the coming months, rather than try to predict when Citigroup's shares will be at their peak.

"We don't want the government making market-timing decisions," Treasury Secretary Timothy F. Geithner said in an interview on CNBC.

If the sale proceeds as planned, Citigroup would be able to cut nearly all of its ties to the $700 billion Troubled Assets Relief Program. The administration, for its part, could highlight the windfall it has received from its rescue of big banks.

During the height of the financial crisis in October and November 2008, Citigroup received more than $45 billion in federal aid in exchange for preferred shares. The government later restructured that package. Officials converted $20 billion into a capital infusion, and the remaining $25 billion was converted in September into common stock at the price of $3.25 a share. Citigroup was the only bank that gave common shares to the government.

Geithner, in the interview, said the sale of Citigroup's stock was a validation of government financial rescue efforts. He said the Treasury has realized about $20 billion in profits from those initiatives.

"It just points out how far we've come," he said. "We don't want to be in the business of owning a share in a private company a day longer than necessary. It's just a sign of how much progress we've made already."