Citigroup Inc., recipient of the biggest U.S. bank bailout, struck a deal with regulators to repay $20 billion to taxpayers and escape government-imposed pay restrictions.
Citigroup, the only major U.S. lender still dependent on what the government calls "exceptional financial assistance," will raise the funds with a sale of $20.5 billion U.S. of equity and debt. The New York-based company also plans to substitute "substantial common stock" for cash compensation, the bank said in a statement today.
Chief Executive Officer Vikram Pandit has pressed for an exit from the Troubled Asset Relief Program out of concern that TARP pay constraints make Citigroup vulnerable to employee poaching by Wall Street rivals. Bank of America Corp. exited the program last week after paying back $45 billion U.S. of rescue funds.
"It’s great news," Gary Townsend, chief executive officer of Hill-Townsend Capital LLC, an investment firm in Chevy Chase, Maryland, said in a Bloomberg Television interview. "It’s important for Citi to exit these extraordinary agreements with the U.S. Treasury and the government as quickly as possible. It’s expensive perhaps, but I think it had to be done."
The bank will sell $17 billion U.S. of common stock, with a so-called over-allotment option of $2.55 billion U.S., and $3.5 billion U.S. of "tangible equity units." The U.S. Treasury will sell as much as $5 billion U.S. 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 U.S. 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 U.S. loss. Citigroup will also terminate its loss-sharing agreement with the government on $301 billion U.S. of its riskiest assets. Canceling about $1.8 billion U.S. of trust preferred securities linked to the program will result in a $1.3-billion U.S. loss, the company said.
Citigroup stock has tumbled 41% this year, valuing the lender at about $90 billion U.S..
"We planned to exit TARP only when we were convinced that it was prudent to do so," Pandit said in the statement. "By any measure of financial strength, Citi is among the strongest banks in the industry."
In October, Pandit said he was "focused on repaying TARP as soon as possible" in cooperation with regulators. He pushed to accelerate the talks after Bank of America’s plan was announced, people familiar with the matter said last week.
Citigroup, which took $45 billion of TARP funds last year, converted about $25 billion U.S. in September into common stock, equivalent to a 34% stake.
The government is winding down the bailout programs it arranged as financial markets convulsed late last year. Treasury Secretary Timothy Geithner said in a Dec. 4 interview that most taxpayer money injected into banks through TARP will eventually be recovered.
JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley, all based in New York, repaid bailout funds in June. San Francisco-based Wells Fargo & Co., with $25 billion U.S. of TARP money, isn’t subject to pay limits because it never needed a second helping of bailout funds.
Companies still dependent on the Treasury’s exceptional assistance program include American International Group Inc. and General Motors Corp.
Related Stories
