- The Washington Times - Tuesday, December 15, 2009

Citigroup Inc. said Monday that it will repay $20 billion in public loans in a big step toward gaining back its independence after last year’s taxpayer-funded bailout.

The banking giant said it immediately will sell $20.5 billion in stock, with the proceeds being used to buy back the preferred shares held by the Treasury Department under the Troubled Asset Relief Program (TARP).

Citigroup received $45 billion in federal assistance under TARP, a $700 billion emergency rescue plan passed by Congress in 2008 to avoid a collapse of the nation’s then faltering financial industry.

Later that year, Treasury and other government organizations also agreed to backstop about $300 billion in questionable Citigroup assets.

Citigroup only has to pay back $20 billion immediately because the remaining $25 billion was converted into a 34 percent government ownership stake in the bank. The United States has pledged to sell its ownership, which has risen in value by more than 20 percent, during the next year.

By agreeing to the payback, the federal government has indicated that Citibank is strong enough to stand on its own.

“We owe the American taxpayers a debt of gratitude,” said Citibank Chief Executive Vikram Pandit.

Mr. Pandit said the bank will “recognize our obligation” to taxpayers by providing lending and assistance to homeowners and other borrowers in need.

The Treasury Department said it will sell up to $5 billion of its common stock held in the bank and will sell the remainder of its Citigroup shares in an “orderly fashion” within six to 12 months.

“The United States never intended to be a long-term shareholder in private companies,” said Treasury Secretary Timothy F. Geithner. “While much work lies ahead to improve lending and spur job creation, today’s announcement by Citigroup takes us another step in the right direction.”

The Treasury Department is in line to earn about $13 billion in profit on its support for Citigroup depending on how much it makes selling the stock, said a Treasury official who spoke on the condition of anonymity, the Associated Press reported.

The $20 billion repayment means that Citibank no longer will be a beneficiary of “exceptional financial assistance” under TARP beginning in 2010.

“As I have stated many times over the past year, we planned to exit TARP only when we were convinced that it was prudent to do so,” Mr. Pandit said. “By any measure of financial strength, Citi is among the strongest banks in the industry, and we are in a position to support the economic recovery.”

But Citibank still faces many hurdles.

The end of the bank’s loss-sharing agreement with the government on about $300 billion of risky investments could hinder Citigroup’s continuing efforts to maintain profitability.

Raising the new capital also will significantly dilute current shareholders’ stake in the company.

Fourteen months after the controversial TARP program began, many of the 700 financial institutions of all sizes that participated in the program have begun paying back some or all of their loans because it carried restrictions such as caps on executive pay and dividends.

Bank of America Corp. said last week that it had repaid the entire $45 billion it received in TARP aid. Most other major commercial and investment banks including JPMorgan Chase & Co., Morgan Stanley & Co. Inc. and Goldman Sachs Group Inc. already have repaid the government.

Wells Fargo & Co. said Monday that it will sell $10.4 billion in new stock to help repay all $25 billion in bailout aid that it received from the government at the height of the market meltdown in 2008.

The San Francisco-based bank’s announcement made it the last national bank to put forth a plan to pay back its bailout money.

The banks’ moves came the same morning that President Obama met with several top Wall Street executives at the White House to urge them lend more to small and midsize businesses to help spur job growth.

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