Citigroup (NYSE:C) is getting close to a deal with the U.S. government to begin repaying at least part of the $20 billion it borrowed under the Troubled Asset Relief Program (TARP), according to reports. Under the deal’s terms, Citigroup would sell over $10 billion in common stock to help it repay the funds it borrowed last year. The money also would allow the New York-based bank to exit a program giving it government protection from losses on more than $300 billion worth of assets. Citi is hoping the Treasury Department will begin selling its 34% stake in the company, which was acquired as part of a $45 billion investment in the bank.
Citi is attempting to sell $20.5 billion in stock and debt to repay the government. It only has to pay back $20 billion to the government from TARP funds it received because the remaining $25 billion was converted into a 34 percent ownership stake in the bank earlier this year. The government has plans to sell that entire stake which has risen in value by more than 20 percent since it was issued during the next year. The loss sharing agreement will also end as part of the plan. After repaying the funds, Citi will no longer face heavy restrictions from the government, including ceilings and heavy scrutiny on executive pay and dividends. However, the repayment comes at a heavy cost to shareholders. Raising the new capital will significantly dilute current shareholders’ stake in the company. Citi and Wells Fargo (NYSE:WFC) are the only two large Banking institutions that have not finalized plans to repay TARP funds. Bank of America (NYSE:BAC) repaid its $45 billion tab earlier this month. Read the rest of this entry »
