Citigroup has confirmed it will repay $20 billion of the bailout money it has received from government, becoming the latest big bank to exit the TARP (troubled asset relief program). To prevent capital ratios from dipping, the company will issue $17 billion in new shares and $3.5 billion in new debt (“tangible equity units”) to investors. Citi says pro forma Tier 1 capital for end Q3 2009 would have been 11.0% under the new capital structure.
The largest banks still using TARP assistance are Wells Fargo and Fifth Third, two institutions with large exposure to commercial property and construction loans.
In its press statement, Citi CEO Vikram Pandit said:
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. 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.
The motivation behind the move is likely to have been two-fold. Exiting TARP removes any government restrictions on salary, which ostensibly allows Citi to pay competitively against the likes of Goldman Sachs. But, it also reduces the stigma associated with government assistance. No mention of the debt guarantees from last November that the government still provides Citigroup was in the press release.