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Tags: citigroup | debt | pay | back

Citigroup May Use $15 Billion Offering to Pay Back U.S.

Friday, 11 December 2009 08:46 AM EST

Citigroup Inc. is talking with the U.S. government about paying back its bailout money, but it is not clear whether a deal is imminent, a person familiar with the matter said on Thursday.

The bank is hopeful, though, and is planning a $15 billion common stock offering soon, people briefed on the matter said.

The U.S. Treasury is more open to Citigroup's plans than the Federal Deposit Insurance Corp., one of the sources said.

Citigroup is eager to repay the government so it can avoid the executive pay restrictions that come along with the three rounds of U.S. assistance it received. The Obama administration's pay czar will soon announce a new wave of pay restrictions for companies that have received extraordinary help from the U.S.

Pay restrictions make it more difficult for Citigroup to keep its most talented employees and attract new ones, compensation experts said.

"We have a backlog of people that TARP banks want to hire and can't because of pay restrictions," said Robert Sedgwick, partner in executive compensation and benefits at law firm Morrison Cohen, referring to the government's Troubled Asset Relief Program.

"If you have an unconditional offer from one bank and another offer that's contingent on regulatory approval, most people will take the unconditional offer," Sedgwick said.

But some investors question whether Citigroup ought to head out on its own after posting more than $120 billion of credit losses since mid-2007.

The bank has some of the highest capital levels in its sector. But it is still struggling to generate profit from its main banking operations.

"Have they reached a sustainable point of profitability and can they right the ship? It's too early to tell," said Joe Plevelich, a research analyst who looks at bank stocks at Schneider Capital Management in Wayne, Pa.

The bank is closer to righting itself now than it was six months ago, Plevelich added.

Government officials have said they wish to withdraw their support for banks only when they are confident the company is ready.

"The basic objective is to make sure as we exit ... we're leaving the capital position of the institutions stronger, not weaker," Treasury Secretary Timothy Geithner said.

Citigroup borrowed $45 billion last year under the Troubled Asset Relief Program.

This year, the government agreed to convert $25 billion of those funds into Citigroup common stock, leaving the United States with a roughly 34 percent stake in the bank.

Citigroup, Treasury, and the Federal Deposit Insurance Corp declined to comment.

The bank's chairman, Dick Parsons, said on Wednesday on cable network CNBC that Citigroup was in a position to repay the bailout funds, a point of view shared by many senior managers at the bank.

But even some Citigroup managers question whether the bank should be paying the government back so soon.

Bank of America Corp., the largest U.S. bank, on Wednesday said it had finished repaying the $45 billion it had borrowed under TARP.

That leaves Citigroup and Wells Fargo & Co. as the last two original TARP recipients that have not yet repaid the government.

The other original TARP recipients, including Goldman Sachs Group Inc., JPMorgan Chase & Co., and Morgan Stanley, paid the government back in June.

Citigroup shares rose 0.3 percent, or 1 cent to close at $3.87 on the New York Stock Exchange, compared with a 0.9 percent drop in the KBW Bank index.

Sources have told Reuters that the government and Citigroup are working to resolve a series of issues, including how the government would sell its Citibank shares, which are now worth about $30 billion.

The government is also talking to Citigroup about the future of the guarantee that the government gave the bank against excessive losses on a pool of assets that was originally about $300 billion.

As Citigroup raises capital, it may look to sell convertible securities, in addition to common stock, to attract a broader array of potential buyers, investors said.

Citigroup has strong capital levels, by the standard of tier 1 common capital, for example. Deutsche Bank analysts estimated that Citigroup's Tier 1 common capital ratio would end 2009 at about 9 percent before a capital raise. For banks overall, the level is 7.5 percent.

But by other measures, the bank does not look as strong. A Standard & Poor's analysis late last month said the bank was below the ideal level.

The S&P analysis looked at capital levels appropriate for the risks on the bank's balance sheet. S&P said Citigroup had a "risk adjusted capital" ratio of 6.2 percent, below the 8 percent that the ratings agency said was appropriate for covering risk.

© 2024 Thomson/Reuters. All rights reserved.

Citigroup Inc. is talking with the U.S. government about paying back its bailout money, but it is not clear whether a deal is imminent, a person familiar with the matter said on Thursday.The bank is hopeful, though, and is planning a $15 billion common stock offering soon,...
Friday, 11 December 2009 08:46 AM
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