Markets & Finance

Citi Can't Quit TARP Until Treasury Sells Stake


Executives can't sell stock to raise money for repayment until the Treasury signals how it will unload its 7.7 billion Citi shares, sources say

By Bradley Keoun

(Bloomberg) — The U.S. Treasury Department's refusal to sell its 34 percent stake in Citigroup (C) is hampering the bank's plans to repay $20 billion of remaining bailout funds, people familiar with the bank said.

Executives at the New York-based bank are growing frustrated because they can't sell stock to raise money for repayment until the Treasury signals when and how it will unload its 7.7 billion shares, said the people, declining to be identified because the matter is under discussion. Investors may be reluctant to buy shares because a Treasury sale could drive down the price.

"The ball is in the government's court," said Chris Kotowski, an analyst at Oppenheimer & Co. in New York, who has a "market perform" rating on the bank's shares. "It's not Citibank's decision to sell them or not sell them."

Bank of America Corp.'s plan to repay $45 billion of bailout funds would leave Citigroup as the only large bank subject to compensation reviews by Treasury paymaster Kenneth Feinberg. Other bailed-out companies under his purview include insurer American International Group Inc. and carmakers General Motors and Chrysler Group.

Citigroup Chairman Richard Parsons said in September that the bank must pay employees competitively to ward off poaching by rivals. Under pressure from Feinberg, the bank cut total 2009 compensation for its 25 highest-paid people by about 70 percent from 2008.

$6 Billion Paper Gain

For almost three months, executives at the bank have tried to persuade Treasury to move ahead with a sale, the people said. At the current market price, the Treasury's shares are worth about $31.2 billion. Because the common shares were converted from $25 billion of bailout funds, that's a paper gain of about 25 percent, or more than $6 billion.

Meg Reilly, a Treasury spokeswoman, declined to comment on whether the government has sold any shares or when it may do so. "Treasury does not comment on individual institutions as a general policy," she said. Citigroup spokesman Jon Diat said he couldn't comment.

Treasury hasn't told Citigroup how or when it plans to dispose of the stake, the people said. The shares are held within the department's Office of Financial Stability, run by Herb Allison, the former chief executive officer of retirement—services firm TIAA-CREF. Allison reports to Treasury Secretary Timothy Geithner.

Pandit's Vow

Citigroup got a total of $45 billion last year from the Treasury's $700 billion Troubled Asset Relief Program. In September, $25 billion of that was converted into common stock, which the Treasury is free to sell at any time.

Chief Executive Officer Vikram Pandit, 52, said Oct. 15 he was "focused on repaying TARP as soon as possible." He said, "We're going to do so in consultation with the government and our regulators."

In a report, CreditSights Inc. analyst David Hendler said Citigroup could repay the $20 billion of TARP funds by selling about $10 billion of common stock along with $10 billion or more of junior debt securities. Regulators may be keeping Citigroup in TARP because of lingering concern that the economy won't recover quickly, Hendler wrote.

The company has almost doubled its cash holdings to $244.2 billion over the past year, the biggest such stockpile of any U.S. bank.

'Not Cash'

"It's not a question of cash," Kotowski said. "It's a question how much the regulators will force banks to raise to clear themselves of the stigma of being a TARP bank."

JPMorgan Chase(JPM, Goldman Sachs Group Inc. and Morgan Stanley (MS), all based in New York, repaid bailout funds in June. San Francisco-based

Wells Fargo (WFC), which hasn't repaid $25 billion of bailout funds, isn't subject to Feinberg's rules because it hasn't received "exceptional assistance."

Even if the Treasury sold its Citigroup shares and the bank paid off the remaining $20 billion, it still might be subject to the paymaster's purview because it has $301 billion of government asset guarantees, the people said. Citigroup has no plans to terminate the guarantees, which remain in effect for 10 years on home loans and mortgage-backed securities and 5 years for other types of assets, the people said.

To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net.

Treasury hasn't told Citigroup how or when it plans to dispose of the stake, the people said. The shares are held within the department's Office of Financial Stability, run by Herb Allison, the former chief executive officer of retirement- services firm TIAA-CREF. Allison reports to Treasury Secretary Timothy Geithner.

Pandit's Vow

Citigroup got a total of $45 billion last year from the Treasury's $700 billion Troubled Asset Relief Program. In September, $25 billion of that was converted into common stock, which the Treasury is free to sell at any time.

Chief Executive Officer , 52, said Oct. 15 he was "focused on repaying TARP as soon as possible." He said, "We're going to do so in consultation with the government and our regulators."

In a report, CreditSights Inc. analyst David Hendler said Citigroup could repay the $20 billion of TARP funds by selling about $10 billion of common stock along with $10 billion or more of junior debt securities. Regulators may be keeping Citigroup in TARP because of lingering concern that the economy won't recover quickly, Hendler wrote.

The company has almost doubled its cash holdings to $244.2 billion over the past year, the biggest such stockpile of any U.S. bank.

'Not Cash'

"It's not a question of cash," Kotowski said. "It's a question how much the regulators will force banks to raise to clear themselves of the stigma of being a TARP bank."

JPMorgan Chase(JPM)., Goldman Sachs Group Inc. and

Morgan Stanley (MS)

, all based in New York, repaid bailout funds in June. San Francisco-based

Wells Fargo (WFC), which hasn't repaid $25 billion of bailout funds, isn't subject to Feinberg's rules because it hasn't received "exceptional assistance."

Even if the Treasury sold its Citigroup shares and the bank paid off the remaining $20 billion, it still might be subject to the paymaster's purview because it has $301 billion of government asset guarantees, the people said. Citigroup has no plans to terminate the guarantees, which remain in effect for 10 years on home loans and mortgage-backed securities and 5 years for other types of assets, the people said.

To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net.


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