Everything was set: The government would begin selling its stake in Citigroup, and the bank would sell new stock and pay back bailout money. Both sides could untangle a relationship that neither saw as ideal.
But the Treasury Department was forced to reverse its plan to unload its Citi shares, showing that both the government and the bank badly misjudged investors' appetite for the bank's stock.
Citi was competing with Bank of America and Wells Fargo, both of which were also selling stock to raise money and were considered in better financial health than Citigroup. Their offers were more warmly received by investors.
Plus, Citi's offer came on the same day that a major investor, the main sovereign wealth fund of Abu Dhabi, filed a multibillion-dollar lawsuit accusing the bank of misrepresenting its financial health in 2007.
Banking industry analysts said Thursday the government should have seen the cool reception coming.
"Either these guys didn't have any advice, or they didn't take the advice, or the whole thing was done in such haste that they didn't even consider it," said Christopher Whalen, managing director of the financial research firm Institutional Risk Analytics.
The government has been eager to unload its stake _ and under pressure from the bank to do it, too _ in order to show the U.S. has confidence in Citi, which holds the largest remaining chunk of bailout money.
Disentangling itself from Citigroup would help the Obama administration fight the perception that it's been coddling Wall Street banks.
"All else being equal, we'd rather not own a chunk of Citi," said Douglas Elliott, a senior fellow at the Brookings Institution and former investment banker. "It's not what we want our government doing."
Treasury declined to discuss the details of its decision.
Citigroup had announced plans to sell 5.4 billion shares of stock at $3.15 a share to help repay $20 billion in government bailout money. That price was 9 percent below where shares were trading before the announcement.
It's also 10 cents a share below the price the government paid for its shares, which meant Treasury stood to lose hundreds of millions of dollars by selling its one-third stake in the bank.
On Thursday, Citi stock fell another 7 percent, closing at $3.20. Investors doubted that the market could have absorbed the additional $5 billion in stock Treasury wanted to unload.
"The market is not buying the Citi story right now," said Alois Pirker, a research director at financial consultancy Aite Group.
While some analysts conceded there was no way the government could have anticipated the big lawsuit, they said the Treasury never should have considered selling its stake while the bank was making such a big offer as well.
"Why did both Treasury as well as Citi's capital markets people misread the market?" asked independent banking consultant Bert Ely. "There's a bit of egg on everyone's faces."
Analysts said Citi didn't have much of a choice but to sell at such a low price. Investors are still uncertain about Citi's health.
After accounts for preferred stock dividends and the debt exchange that gave the government a stake in the bank, Citi lose $3.24 billion in the third quarter. Its loan losses are still piling up, and it still has to find buyers for some of the risky investments that got it into this mess.
On top of that, the Abu Dhabi fund wants compensation or some way to get out of its $7.5 billion investment in the bank. It charges the bank misrepresented its health when the deal was struck.
Citigroup has promised to "vigorously" fight the claims, which it said had no merit.
Trying to sell its own stock at a higher price could have caused a bigger disaster _ too few investors willing to buy in. Citi had to get the deal done or be left further behind competitors, analysts say.
Already struggling to keep top talent and attract new customers, Citi would have been the only Wall Street bank still stuck under restrictions tied to government bailout money, including caps on employee pay.
The last remaining national banks that had yet to pay back bailout money, Bank of America and Wells Fargo, both made their stock offerings in order to do just that.
Bernard reported from New York.