Citi Getting Out From Under TARP

Citigroup plans to repay $20 billion that it borrowed from U.S. taxpayers through the Troubled Asset Relief Program. That’s good news for Citi execs, who will be able to pay themselves whatever they want once they’re free from TARP restrictions. And it may be good for taxpayers, as long as Citi doesn’t take any of those ultra-cheap Federal loans like BofA did. Citi shareholders? Hey, somebody’s gotta pay for this.

As spelled out by Bloomberg, to pay back the government, Citibank will:

[S]ell $17 billion of common stock, with a so- called over-allotment option of $2.55 billion, and $3.5 billion of “tangible equity units.” The U.S. Treasury will sell as much as $5 billion of common stock it holds, with plans to unload the rest of its stake during the next six to 12 months. An additional $1.7 billion of common stock equivalent will be issued next month to employees in lieu of cash they would have otherwise received as pay. The TARP payments will result in a roughly $5.1 billion loss.

Citigroup fell to $3.86 in New York trading at 8:03 a.m., down from its $3.95 close on Dec. 11. The stock has tumbled 41 percent this year, valuing the lender at about $90 billion.

Guess this means they can keep their name on the stadium.

Citigroup to Repay $20 Billion of Government Bailout [Bloomberg.com]
Previously: Why Bank of America’s TARP Payback Is Bad News

Comments

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  1. TailsToo says:

    Nice – drive the stock price down so that executives can profit.

    The banking sector already failed – why are we not tearing it down, and rebuilding it the right way? Instead we’re letting the people who failed keep their ill gotten gains and giving them a head start on their next multi-million dollar pay day.

    But apparently you’re a socialist if you think health care run by the government is okay.

    • Zero says:

      Well, maybe we do think government run health care is okay, but what in the world does that have to do with the banking industry? I’m waiting for a straight line to be drawn here.

  2. masso says:

    Sigh… I feels for Citi Shareholders. Greed still rules I see.

  3. RPHP says:

    “And it may be good for taxpayers, as long as Citi doesn’t take any of those ultra-cheap Federal loans like BofA did.”

    I guess consumerist does not know how the financial systems works, the legal difference between an equity interest and loan, and that the fed giving loans to banks is a regular activity. Thanks for misconstruing how fed loans work once again.

    • Whtthfgg says:

      No..its the ultra cheap “essentially free money” that has been available for the past year that we are talking about. Not your normal day to day lending. Borrow essentially free money, pay back restrictive money. Get out from TARP restrictions just by rearranging money. Thats what they mean about BoA

      • RPHP says:

        That may be true for BofA but the government no longer has an equity interest when they are loaning money. The legal difference between equity and loan is significant.

  4. Esquire99 says:

    Has anyone considered that Citi thinks that pay caps are bad for business generally, and the executives aren’t just looking to “profit?” When Citi can’t pay their people what its peers are, talent will leave. If talent leaves, Citi’s ability to compete and turn a profit for its shareholders is diminished. Thus, Citi paying back TARP and getting out from under the pay czar is likely in the long-term interest of its shareholders.

    • Whtthfgg says:

      the entire sector is over inflated in pay. Its each of them paying ginormous amounts that props this crap up

      • Esquire99 says:

        While that may be, if Citi wants to compete and return to profitability, it has to retain its talent. If that means being able to “over-pay” them, that’s what it takes. An inability to compensate its people at the level of its peers is a huge competitive disadvantage to Citi and ultimately a disadvantage to its shareholders.

        • RPHP says:

          You are exactly right. People at the executive level can find good paying (maybe someone would say they are overpaid) jobs even in this recession. So, yes it is necessary to pay the talent at the level the competition is paying.

    • masso says:

      At the current state where people left and right are losing their jobs, I hardly think providing more incentive like raising their pays are necessary.

      • Esquire99 says:

        That’s probably why you don’t work in bank management. While the job market isn’t good right now, there is always a market for exceptionally talented people who can come in and increase revenues or profits. For the exceptional trader-types or deal-makers at Citi who bring in money for the firm, they may be able to easily move to Goldman, JPMorgan, BofA, etc. where there are no pay limits. If they leave, this will hurt Citi. Hence, Citi has an incentive to be able to pay them what it takes to keep them on board.

      • pinkbunnyslippers says:

        Nobody b*tche$ about executive compensation when the banks are raking in money hand over fist and the economy’s busting at the seams. That’s what these top-level talent folks are paid to do. I agree, they shouldn’t be getting huge bonuses when the economy’s in the toilet, but let’s put some perspective around the situation. Eliminating any sort of pay incentives erodes the foundation on which capitalism is built upon – if there’s no incentive to do better-than-average, why bother?

    • s73v3r says:

      Given how much of that “talent” helped contribute to the bank’s instability, which caused it to need TARP funds in the first place, I don’t think they’d be losing much if they left.

  5. full.tang.halo says:

    I guess you can look on the upside, we, the taxpayers, get our money back, with interest, and the profit from the common stock sale by the treasury. People that have stock in citigroup are the ones getting really screwed, a) their stock gets diluted because of the extra shares citi is selling b) Management manages to make the stock go down, so you diluted shares are worth even less, c) I’m sure there will be some sort of you paid back the TARP loan bonus of millions issued to the highest ranking guys as a celebration….

  6. truthandjustice says:

    Hi Ben & gang,
    Last week it was heralded by the media that BofA was paying off their TARP. What the media did NOT say was BofA was paying of their Fed debt with — get this — are you ready? Primarily Fed debt of a different kind and a better rate. Boy . . . we taxpayers made out on that deal . . . didn’t we? NOT!!!

    How about using your investigative prowess on what’s the REAL DEAL on the BofA and CITI’s “getting out from under TARP” ? And whether this was a good deal for the American taxpayer or not? Somehow — and excuse my cynicism, unwarranted I’m sure [said with heavy sarcasm] — I don’t think the taxpayer is getting the deal we’re told we’re getting.

  7. LiveCheap says:

    So Citi and B of A have basically used super cheap government capital combined with jacking everyone’s rates on their debt in order to stabilize their stock price enough to issue tons of stock to pay back the government. So they ‘survive’ and in the new world we have super high credit card interest rates and super low money market rates so they can get their house back in order on the spread.

    So the government gets paid back but its coming from profits off of their customers and new money from investors. At least you can choose not to be a customer or an investor. The amazing thing to me is that anyone would invest money in Citi. I get B of A, but Citi has been a investor’s nightmare several times. What is going to be different this time?

  8. JiminyChristmas says:

    I hope everyone here is aware that TARP is different from ‘the bailout’ and all of the other loans and guarantees the federal government has made to the banking sector.

    For example, totally outside the scope of TARP, the Fed has set aside $220billion to backstop Citigroup’s potential losses on mortgage-backed securities. The Fed hasn’t had to spend that money yet, but that obligation is still in place and Citi would probably have a hell of a lot harder time raising money without it.

    Likewise, the Fed has other programs like the Term Asset-backed securities Lending Facility and the Term Auction Facility that feed cash to the banking sector (not just Citigroup). These expenditures currently total about $150billion. The way these programs work is: 1) The Fed buys assets from banks, such as securitized consumer loans, they would otherwise have a hard time selling or couldn’t sell on the open market for as much as the Fed will give them. 2) The Fed loans banks money in return for ‘collateral’ in the form of mortgage-backed securities the banks would otherwise find impossible to unload.

    If you add up these plus every other government-sponsored ‘cash infusion’, loan, backstop, guarantee, etc. it’s in the multiple trillions of dollars. Ergo, TARP itself is maybe 10% of the total amount of money in play. It’s unfortunate that the banks are able to escape the TARP terms, i.e.: oversight and pay caps, when they are still in hock to the government for hundreds of billions more. It’s ridiculous that a Citi exec can collect a fat bonus after they paid back the TARP funds, while at the same time the government is guaranteeing that $220billion in Citi assets won’t lose money.