Will Institutional Investors Warm Up to Citigroup (C) Again?

While institutional stock ownership in Citigroup (NYSE: C) is currently very low, at roughly 20%, a Wall Street Journal article today contends that a government exit could trigger the re-entry by mutual and pension funds.

The U.S. government currently own $20 billion in Citi trust preferred securities, and 34% of the common stock, which makes some institutional investors "afraid" according to Macquarie Capital analyst David Trone. If the government were to exit their position, this fear would be removed.

This week, multiple reports have surfaced that Citigroup is in negotiations with the government to payback the remaining TARP, although details remain murky. Even if Citigroup pays back the $20 billion in TARP, the U.S. still own the large common stock position and still has a backstop on billions in Citigroup debt.

While some hedge fund money has flowed into Citigroup, it is one of the least own banks. As of Sept. 30, mutual fund giant Fidelity controlled 5.1% of Wells Fargo & Co. (NYSE: WFC) and 2.9% of Bank of America (NYSE: BAC), but only 0.2% of Citi.

If Citigroup is able to come to terms with the government on the terms of a TARP payback and the government announces plans to sell their 34% common stock stake, then and only then will institutional investors be ready to step back in to Citigroup in a big way. Where Citigroup's stock settles to before this fresh buying remains a question.

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