Citi Is Eager to Pay Back Bailout Aid

Citi Is Eager to Pay Back Bailout Aid
By ERIC DASH
Copyright by The Associated Press
Published: December 9, 2009
http://www.nytimes.com/2009/12/10/business/10bank.html?th&emc=th


A year after accepting two taxpayer bailouts, Citigroup is racing to raise billions of dollars in the stock market to repay the aid, a crucial step in freeing itself from Washington’s grip.

Vikram S. Pandit, Citigroup’s chief executive, has been trying to win permission from federal regulators to repay its remaining $20 billion in relief funds by selling new stock.

Even if Citigroup were to pay back all or part of its bailout funds — a move some analysts warn might be premature — the giant financial services company would still be beholden to the government because of other federal support it is receiving.

Citigroup is redoubling its efforts to reimburse taxpayers now that Bank of America and many other of its big rivals have repaid the bailout money they received last year at the height of the financial crisis. Doing so would help Citigroup shed the stigma associated with being the last Wall Street giant still tied to Washington.

If Citigroup can convince the government that it is strong enough to stand on its own by repaying the money, and persuade investors to buy new shares, the accomplishment would be another milestone in the recovery of the nation’s financial industry. Few analysts had expected Citigroup to repay the government so soon.

But whether Citigroup will be allowed to repay the money it received under the Troubled Asset Relief Program, or TARP, is uncertain. Regulators are nearing a consensus on the amount of capital that the bank needs to repay by the end of the year, according to a person briefed on the situation, who spoke on the condition he not be named given the delicate negotiations underway.

Citigroup executives and federal regulators are also discussing whether to let the bank out of a government insurance policy that guarantees almost $301 billion of Citigroup’s most troubled assets. Citigroup paid for that insurance selling preferred stock to the government. It is unclear how Citigroup would disentangle itself from that policy.

No final decisions have been made and the talks remain fluid. If Citigroup does not reach an agreement with its regulators in the next few days, however, it would be difficult to undertake a stock sale before mid-January, given that many investors will soon depart for the holidays. The bank also could run into disclosure issues if it released new information ahead of its first-quarter results.

While Citigroup executives have been discussing a payback plan with its regulators for months, they stepped up their efforts late last week after Bank of America was approved to repay its relief money.

Over the last few days, Vikram S. Pandit, Citigroup’s chief executive, has been trying to win permission from federal regulators to repay its remaining $20 billion in relief funds by selling new stock, according to the people briefed on the talks. The government, which provided $45 billion in taxpayer relief, converted $25 billion of its investment into common stock earlier this year. That gave it a one-third ownership stake.

At first, Treasury Department and some Federal Reserve officials appeared willing to let Citigroup repay the government as long as the company raised enough money to at least partially offset the $20 billion. Officials from the Federal Deposit Insurance Corporation, who have a frosty relationship with Citigroup executives and deeper financial exposure, had been demanding that Citigroup raise more than that.

It is unclear if Citigroup would be required to raise money by selling additional businesses or assets — one of the terms of the Bank of America’s deal to repay the relief funds. Any new stock would dilute the value of Citigroup’s existing share, a prospect that has caused their value to tumble this week. A Citigroup spokesman declined to comment late Wednesday. Officials from the Treasury, F.D.I.C. and the Federal Reserve declined to comment, too.

Citigroup executives are under pressure to cut a deal that will satisfy all of the bank’s regulators, and tension is running high inside the company’s Park Avenue headquarters.

The stakes are huge. While much of Wall Street is recovering, Citigroup remains plagued by rising losses in its consumer lending business and could face additional strain if does not get some relief from regulators when it moves billions of off-balance-sheet assets back onto its books by the end of this month.

Bank executives fear they could lose dozens of talented bankers and traders without a repayment plan in place before bonuses are paid early next year. Citigroup also faces an additional hurdle as the only relief recipient, aside from GMAC Financial Services, to convert government-issued shares into common stock.

Any effort by Citigroup to get out from under the government’s thumb will probably require the Treasury to begin selling those 7.7 billion shares in the company. That is a complex multistep transaction that is unlikely to happen before the end of this year.