Citigroup Inc. said today it is repaying $20 billion in bailout money it received from the Treasury Department, in an effort to reduce government influence over the banking giant. The government will also sell its stake in the company.
The New York-based bank was among the hardest hit by the credit crisis and rising loan defaults and got one of the largest bailouts of any banks during the financial crisis. The government gave it $45 billion in loans and agreed to protect losses on nearly $300 billion in risky investments. Wells Fargo & Co. remains the last national bank that has yet to pay back its bailout money.
Citi is selling $20.5 billion in stock and debt to repay the government. It only has to pay back $20 billion because the remaining $25 billion was converted into a 34 percent ownership stake in the bank earlier this year. The government plans to sell that entire stake — which has risen in value by more than 20 percent — 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 scrutiny and restrictions from the government, including caps on executive pay and dividends. However, the repayment comes at a heavy cost. Raising the new capital will significantly dilute current shareholders’ stake in the company.
Citi’s announcement comes just days after Bank of America Corp. completed the repayment of $45 billion it received as part of TARP.
San Francisco-based Wells Fargo, which operates the Wachovia Bank system in Connecticut and other states, is now the last large national bank that hasn’t paid back the government. It received $25 billion. Like Citi, Wells Fargo was one of the initial eight banks to participate in TARP.
TARP recipients have so far paid back $116 billion. That’s out of a total of $453 billion that the government extended to banks, insurers, automakers and other companies under the program. (AP)
