Stating that it was in “a position to support the economic recovery,” Citigroup (C) Chairman and Chief Executive Vikram Pandit formally announced its agreement with the Treasury Department to exit the Troubled Asset Relief Program (TARP).
The announcement came after weeks of negotiations with regulators who remain skeptical about the health of the financial giant.
Unlike other banks that have repaid the aid, Citigroup has to replace the $20 billion of TARP funds that remained on its balance sheet entirely with fresh capital. The government and banking regulators demonstrated that, at least for now, they decide the conditions for TARP exit on a case-by-case basis, and they are willing to set tough conditions.
Citigroup will immediately issue $20.5 billion of capital and debt, comprised of:
- § $17 billion of common stock
- § $3.5 billion of tangible equity units
The U.S. Treasury will sell up to $5 billion of the common stock it holds in a secondary offering at the same time, and the government will sell the remainder of its 34% stake “in an orderly fashion” over the next six months to a year.
The bank has also decided to pay employees with $1.7 billion in stock in lieu of cash they would have otherwise received.
Once Citigroup repays the $20 billion of TARP trust preferred securities and upon termination of the loss-sharing agreement, it will no longer be deemed to be a beneficiary of “exceptional financial assistance” under TARP beginning in 2010.
“As I have stated many times over the past year, we planned to exit TARP only when we were convinced that it was prudent to do so,” Pandit said. “By any measure of financial strength, Citi is among the strongest banks in the industry, and we are in a position to support the economic recovery.”
In support of their strength, Citigroup released the following statistics in their statement:
- § In 2009, Citigroup has provided approximately $458 billion in new credit in the U.S. through the end of October.
- § Since the start of the U.S. housing crisis in 2007, Citigroup has worked with more than 715,000 homeowners, with mortgage debt aggregating approximately $79 billion to help them avoid potential foreclosure.
- § Citigroup is also currently helping more than 1.5 million credit card customers manage their debt through a variety of forbearance programs. More than 510,000 card members entered these programs in the third quarter alone.
Citigroup said that by Dec. 31, it will have paid or accrued $3.1 billion in dividends and interest to the government on TARP investment.
In a statement, the Treasury called Citigroup’s announcement a “step in the right direction.”
“Treasury has repeatedly stated that the United States never intended to be a long-term shareholder in private companies,” Treasury said. “As banks replace Treasury investments with private capital, confidence in the financial system increases, government’s unprecedented involvement in the private sector diminishes, and taxpayers are made whole.”
By reaching the agreement with Treasury, Citigroup hopes to change public perception and demonstrate its role as a global bank whose growth and expansion will be largely overseas rather than in the United States.
It’s quite a change from two years ago when; facing write downs of more than $30 billion from risky mortgage loans, Citigroup received a multi-step bailout. The bailout included two cash infusions last year that injected $45 billion into Citigroup. The government this year agreed to convert $25 billion of TARP preferred shares into common stock, giving the U.S. a one-third stake in the company.
Citigroup also has remodeled itself to help fortify itself against losses. In January, the bank reorganized itself into two separate units — placing retail and investment banking into a revived Citicorp name, and its brokerage and asset management operations into Citi Holdings.
