Citigroup May Repay $20 Billion in TARP Funds This Week, According to Reports
According to published reports, Citigroup Inc. is close to reaching an agreement with the Treasury Department and regulators that would allow it to repay $20 billion dollars worth of bailout funds.
The plan would reportedly involve Citigroup raising $20 billion dollars in capital to pay the government back.
Apparently Citigroup has been holding discussions with the government for months regarding the repayment of the $20 billion dollars in TARP funds.
One of the sticking points has been the fact that the Treasury currently owns 7.7 billion Citigroup shares. This stake came as a result of converting $25 billion dollars in TARP money (Citigroup was originally given $45 billion dollars) into $25 billion dollars worth of C common shares.
These shares can be sold at any time (they are unrestricted), making it nearly impossible for Citigroup to raise money from investors unless Citigroup and the Treasury strike some kind of an accord, or unless the Treasury decides to sell their stake altogether. Would you participate in a Citigroup offering if you knew that the government may be planning on selling their $30 billion dollar plus stake in Citigroup at any moment? That would create a great deal of downwards pressure on the stock.
According to Businessweek.com, the Treasury may be planning a "partial" offering of their 7.7 billion shares in coordination with Citigroup's effort to raise capital.
Citigroup would join Goldman Sachs, Bank of America and JP Morgan as some of the financial institutions that have paid back their TARP funds if this deal does come to pass.
Citigroup executives have publicly complained about the "poaching" of some of their best talent due to government-imposed compensation limits. These pay limits apply to all companies that haven't yet paid back their TARP funds.
Companies who have repaid the funds are free to lavish as much money as they want on new hires, leaving companies who haven't yet repaid their TARP money at a severe competitive disadvantage.
That's how Citigroup executives explain it, anyways.
A formal announcement from Citigroup is expected later this week.
Filed under: General Market News