Citigroup (C) Falls As U.S. To Begin Selling Shares, CDS Rises

Shares of Citigroup, Inc. (NYSE: C) are under pressure today after the U.S. put the wheels in motion to start selling its massive 7.7 billion share stake in the resurgent bank.

Today, Citigroup filed a prospectus supplement with the SEC covering the Treasury's sale of its common stock which it received last summer as part of the exchange offers conducted by Citigroup to strengthen its capital base.

Treasury said it will begin selling shares in the market in an orderly fashion under a pre-arranged written trading plan with Morgan Stanley. Initially, Treasury will allow Morgan Stanley to sell up to 1.5 billion shares. Following the sale of the first 1.5 billion shares, Treasury expects to provide Morgan Stanley with authority to sell additional shares.

The Treasury's sales under this plan do not cover its holdings of Citigroup trust preferred securities or warrants for its common stock, which will be disposed of separately.

In addition to the stock sale news, credit defaults swaps on Citigroup rose to their highest levels since March. This indicates debt investors are willing to pay more for protection against a debt default.

The rise in the CDS is not Citigroup-specific. In fact, CDS on other financial stocks from Goldman Sachs (NYSE: GS) to JPMorgan (NYSE: JPM) have also seen an uptick recently. This is likely related to numerous fears, including increased regulation from the financial reform bill which is making its way through Congress.

Shares of Citigroup are down 3.6 percent today to $4.69.

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