TUESDAY, MARCH 30, 2010

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Economy & Business A21

Treasury picks Morgan Stanley to handle Citigroup stock sale

by David Cho

The Treasury Department an- nounced Monday that it had se- lected Morgan Stanley to handle the sale of its massive stake in Citigroup, spurning an offer from Goldman Sachs, which was will- ing 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 de- clined 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

Millions added to foreclosure crisis fund

by Renae Merle

The Obama administration announced Monday that it is ex- panding by $600 million a fund aimed at helping states tackle the foreclosure crisis with locally tailored approaches. State housing finance agencies from North Carolina, South Carolina, Ohio, Oregon and Rhode Island will share $600 million to test new ap- proaches to helping borrowers save their homes from foreclo- sure. That is in addition to $1.5 billion set aside for Califor- nia, Nevada, Arizona, Michigan and Florida when the program was initially announced in Feb- ruary. Both initiatives will be fi- nanced through the govern- ment’s Troubled Assets Relief Program.

While the first round of fund- ing targeted states that had seen home values decline more than 20 percent, the second round of states were picked because they had high concentrations of peo- ple living in economically dis- tressed areas, including counties where the unemployment rate exceeded 12 percent in 2009. After the Obama administra- tion announced the initial pro- gram, it immediately received pleas for help from other states hit hard by the foreclosure crisis, including Ohio. “This is a victory for Ohio’s struggling homeown- ers,” said Inez Killingsworth of Empowering and Strengthening Ohio’s People, a nonprofit group that had lobbied for the state to be included in the program. “This is an important step, one that understands the great need in Ohio.”

Again, the state housing fi- nance agencies are tasked with developing innovative approach- es to the growing challenge that unemployment and falling home prices have posed to mortgage relief efforts. That could include incentives for lenders that cut the principal owed by owners who owe more than their home is worth, known as being underwa- ter. The “innovation funds” are expected to address gaps in the federal response to the foreclo- sure crisis. “It’s attempting to enable local

innovation,” said Herb Allison, a Treasury assistant secretary. Many of the programs are likely to be focused on helping unem- ployed borrowers, he said, but not all of them. This comes after the Obama administration announced last week it was revamping its na- tional approach to foreclosure prevention. The new federal guidelines require lenders to cut the payments of homeowners who can prove they have lost their job for at least three months. It also increases incen- tives for lenders to cut loan bal- ances for borrowers who owe more than their homes are worth because of falling home prices. Overall, government official

have said, they hope their efforts will help up to 4million borrow- ers avoid foreclosure. If that goal is reached, millions of borrowers will still lose their homes to fore- closure over the next few years but, officials said, perhaps enough will be prevented to gen- erate some stability in the hous- ing market.

merler@washpost.com

tremendous interest among Wall Street’s leading firms vying to un- derwrite the deal. Some, includ- ing Goldman, had offered to take the job at minimal cost to en- hance their chances of getting such a prestigious opportunity. Only the stock offering by Ja-

pan’s Nippon Telegraph and Tele- phone, 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 pro- duce a profit of more than $7 bil- lion 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 govern- ment making market-timing de- cisions,” Treasury Secretary Tim-

othy F. Geithner said in an inter- view 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 Re- lief Program. The administration, for its part, could highlight the windfall it has received from its rescue of big banks.

During the height of the finan- cial crisis in October and Novem- ber 2008, Citigroup received

more than $45 billion in federal aid in exchange for preferred shares. The government later re- structured that package. Officials converted $20 billion into a cap- ital infusion, and the remaining $25 billion was converted in Sep- tember into common stock at the price of $3.25 a share. Citigroup was the only bank that gave com- mon shares to the government. Geithner, in the interview, said the sale of Citigroup’s stock was a

validation of government finan- cial 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.”

chod@washpost.com

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