With public sentiment strong against the companies that have received TARP funds, the stigma associated with it, and the government interference that accompanies it, Citigroup Inc. (NYSE:C) CEO Vikram Pandit has been pushing hard to work out a deal to repay the funds as quickly as possible.
Once Bank of America (NYSE:BAC) CEO Kenneth Lewis announced the company was going to pay back their TARP funds (and it has now been accomplished), it was obvious other companies would join the effort to do the same for themselves.
Watching Bank of America attempt to hire a CEO when the government thumb was on the company confirmed it would be impossible to go forward until TARP funds had been repayed. That was a wake-up call for other companies which had taken TARP funds to get moving on their repayment plans as well.
Word is Pandit and Citigroup are asking how and why Bank of America was allowed to get a deal so quickly to pay back their TARP debt. My thoughts are the government allowed it because it was being exposed as an obstacle and stumbling block concerning the hiring of a CEO replacement for departing Ken Lewis. By extension, that meant all the other government interference in executive bonuses and pay would be seen as what it was: a negative impact on the company and the markets; something government interference in the market always generates.
This is a classical catch-22 situation for Citigroup, as the government may not allow them to exit nearly as quickly as Bank of America, which means they’ll have a major say in compensation at the company. That means Citigroup will be at a major advantage in hiring top bankers and traders to help the company generate revenue to help it out of its economic mess.
The issue should never of have been one of course, as the government should have stayed out of the picture and allowed the market to sort things out. But now that they have interfered, this is what is left over from the debacle.
Citigroup is in a weaker bargaining position than Bank of America, and it would dilute its shares even more for shareholders, as the government is demanding a mechanism for selling the $30 billion in shares they own in the company as part of their exit strategy. That could have a negative impact for years ahead as far as the value for shareholders.
Another huge problem to resolve is the $301 billion in government guarantees concerning the numerous auto, commercial real estate and residential loans still outstanding, among other assets the company holds. In other words, the deal is very different than the one worked out with Bank of America.
In the end, it is thought Citigroup will probably have to raise $10 billion through equities and another $10 billion in other securities to pay back the TARP loans.
Pandit and Citigroup definitely need to make it happen, and they will be at a competitive disadvantage until they do.