Citigroup (NYSE:C) Follows in Bank of America’s (NYSE:BAC) Footsteps: Seeking Permission to Pay Back TARP Funds

When Bank of America (NYSE:BAC) initiated action toward paying back the TARP funds it received, it was expected that some banks would follow behind them quickly, and that’s the case, as Citigroup (NYSE:C) is pushing the U.S government to allow them to pay back $20 billion in taxpayer dollars.

Citigroup is highly motivated at this time because of a short window where they could sell some of their shares would close down next week; losing of course the major means they would use to generate the cash to pay off the TARP funds.

Others have somewhat resisted this path, especially Wells Fargo (NYSE:WFC), which has historically resisted issuing more common shares which inevitably dilutes the value of the shares of existing investors in the company. That isn’t much of a problem for Citigroup, as its shares are already diluted, and more dilution probably won’t harm the price much of the years ahead, as they have survival and other problems to contend with before those concerns are addressed.

The first thing they need to do is to get the government off their backs so they operate more freely. The government owns a huge 34 percent of Citigroup, and has implied its willing to sell a number of those shares to work with the bank raising capital. Selling the government shares at the time Citigroup were to issue more shares could also have a detrimental effect upon the value of the shares, but that’s what Citigroup shareholders face.

Citigroup received a total of $45 billion in TARP funds, and this would take care of less than half of that.

At this time it seems the U.S. Treasury Department will not sell off the 34 percent it has in Citigroup until an overall strategy is reached on paying back all it owes from the $45 billion taxpayer bailout, which also would entail capital reserves it maintains once the financial smoke clears.

Unnamed sources cited from the Financial Times said the window open for Citigroup ends on either December 14 or December 15 on initiating efforts to raise capital. If that doesn’t happen, the copany will have to wait until after its quarterly results, and probably start issuing stock sometime in the latter part of January.

Like all the banks, Citigroup is highly concerned about its ability to compete for top employees with the pay limits forced upon them by the government. Even before the Bank of America announcement, Citigroup had been pressing for several months to have the Treasury sell their stake in the financial institution so they could issue stock to raise capital without completely devastating their value.

The other side of the concern is having Citigroup (probably in the worst condition of all the large banks), pay TARP funds back too soon and bring it back to needing to receive more taxpayer money to survive, which would be a political disaster and underscore the fact they shouldn’t have been bailed out in the first place, as neither should have the other banks.