by Dan Olson, Analyst at
Imagine a single insider sitting on 1.5 billion shares of
) stock that has made it clear to the markets that it
intends to unload every single share it owns, as soon as
it can. At today's price of around $3.71 that's roughly
$5.5 billion of Citigroup's market capitalization spewing
into the markets. Significant, perhaps?
That shareholder is, of course, the Treasury. They
announced plans to share all of their holdings in April
with the help of Morgan Stanley. The next largest
shareholder in Citigroup is State Street Corporation,
with a reported 704 million shares outstanding, or half
of what the Treasury owns. Talk about the mother of all
Learn more about insider trading in this video:
An Inside Look At Insider Trading
Both the Treasury and the Fed have made it clear that
they plan to be very careful about when and how to
dispose of the assets they own, especially when these
asset sales affect publicly owned corporations. But no
matter how measured their approach, the transactions are
bound to have an impact on the stocks - even if all it
does is signal to investors their belief that the economy
in general, or these companies in particular, are now
stable enough to withstand the shock of a major sale.
It's worth noting that the Treasury now expects to make
money, not lose money, on the $245 billion it invested in
banks through TARP; and they've said so in their monthly
reports. You can see all of their holdings and all of
their transactions, including planned sales and interest
and dividend payments, at
. There you will see that most of the TARP money was used
to make investments in preferred shares in banks.
The Federal Reserve and the Treasury are both sitting on
a huge war chest of assets the likes of which we have
never seen. We're talking about over a trillion dollars
in mortgage-backed securities alone at the Fed, and
hundreds of billions of dollars of assets at the
[pdf]compiled by the Congressional Oversight Panel
responsible for overseeing TARP transactions and asking
the tough questions, "after Treasury completes all of its
TARP purchases [in October of 2010], it will hold a
massive pool of financial assets likely worth hundreds of
billions of dollars, and the process of unwinding some of
these holdings may continue for a number of years."
Some of the largest assets include the aforementioned
Citigroup stock and also $46 billion in AIG preferred
stock and $61 billion in shares and debt in GM and
The COP report continues: "These principles may sometimes
be at odds with one another. For example, the most
profitable moment to sell a TARP asset may not be the
moment that best promotes systemic stability or the
moment that best serves a particular institution."
But already the Treasury announced that it intends to
conduct public auctions to sell warrants it owns in Wells
) , Comerica Inc., Valley National Bancorp, Sterling
Bancshares, Inc. and First Financial Bancorp.
In April the Treasury sold warrants it owned in PNC
Financial Services Group (
) valued at $324 million.
In the case of the Federal Reserve, they own $1.12
trillion in holdings of mortgage-backed securities and
$167.6 billion of agency debt securities. The Fed made it
clear in its annual report, released yesterday, that it
doesn't intend to sell any of these securities until the
economy stabilizes. But it can't hang onto them forever.
When they do start to unload one thing will be certain:
the Fed thinks the economy has stabilized. In fact, most
suspect the asset sales to begin immediately after the
Fed finally decides to raise target rates.
We suggest that investors pay close attention to the
disposition of these assets over the next 12-24 months.
While we don't think they necessarily present individual
investment opportunities or risks (except perhaps in the
case of a few outliers like Citigroup, AIG or PNC), they
do signal broad economic turning points and are well
offers daily articles, videos and investing guides -
for free - about everything from investing in stocks and
options to trading currencies in the forex market and
more. Visit LearningMarkets.com to learn more about
investing and to interact with other investors just like