Citigroup Failing to Pay Back TARP

Bearish on Citigroup, sell sell sell

Citigroup shares were falling 6% to $3.71 Monday. It will immediately issue $20.5 billion of capital and debt, made up of $17 billion of common stock, with an over-allotment option of $2.55 billion. It also will issue $3.5 billion of tangible equity units. This is to account for $20 billion in TARP repayment. Although it received $45 billion in government aid from the U.S. government’s Troubled Asset Relief Program (TARP). The bank is only paying back $20 billion of the funds because the other $25 billion was converted by the U.S. government into a 34% stake in the bank.

The U.S. Treasury will be selling up to $5 billion of the common stock it holds in a concurrent secondary offering, according to Citigroup. Treasury will sell the remainder of its shares in an orderly fashion over the next six to twelve months.

Citigroup said the repayment of the funds from TARP will result in a pretax loss of about $8 billion, or $5.1 billion after taxes. Citigroup also said it would terminate the loss-sharing agreement with the government and cancel $1.8 billion of the $7.1 billion in trust preferred securities it originally issued to the government. This will result in a pretax loss of $2.1 billion. The bank said ending the loss-sharing agreement will increase Citigroup’s risk-weighted assets by about $144 billion.

The U.S. government had been protecting Citigroup from most losses on more than $300 billion of assets.

“The TARP program was designed to provide assistance until banks were in a position to repay it prudently. We are pleased to be able to repay the U.S. government’s trust preferred securities and to terminate the loss-sharing agreement,” Citigroup CEO Vikram Pandit said in a statement Monday. “We owe the American taxpayers a debt of gratitude and recognize our obligation to support the economic recovery through lending and assistance to homeowners and other borrowers in need.”

Once Citigroup repays the TARP funds and once the loss-sharing agreement ends, the bank said it it will no longer be deemed to be a beneficiary of “exceptional financial assistance” under TARP beginning in 2010, a designation it was trying to shake.

Citigroup has been pushing to pay back funds it received under TARP ever since Bank of America received the OK to pay back the $45 billion it received in bailout aid.

Citigroup also said Monday it would issue in January $1.7 billion of common stock equivalents to employees as opposed to cash bonuses they were to receive.

[ special thanks to The Street ]

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