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Dec. 14 (Bloomberg) -- Citigroup Inc., recipient of the biggest U.S. bank bailout, struck a deal with regulators to repay $20 billion to taxpayers and escape government-imposed pay restrictions.
Citigroup, the only major U.S. lender still dependent on what the government calls “exceptional financial assistance,” will raise the funds with a sale of $20.5 billion of equity and debt. The New York-based company also plans to substitute “substantial common stock” for cash compensation, the bank said in a statement today.
Chief Executive Officer Vikram Pandit has pressed for an exit from the Troubled Asset Relief Program out of concern that TARP pay constraints make Citigroup vulnerable to employee poaching by Wall Street rivals. Bank of America Corp. exited the program last week after paying back $45 billion of rescue funds.
“It’s great news,” Gary Townsend, chief executive officer of Hill-Townsend Capital LLC, an investment firm in Chevy Chase, Maryland, said in a Bloomberg Television interview. “It’s important for Citi to exit these extraordinary agreements with the U.S. Treasury and the government as quickly as possible. It’s expensive perhaps, but I think it had to be done.”
Stock Sale
The bank will sell $17 billion of common stock, with a so- called over-allotment option of $2.55 billion, and $3.5 billion of “tangible equity units.” The U.S. Treasury will sell as much as $5 billion of common stock it holds, with plans to unload the rest of its stake during the next six to 12 months. An additional $1.7 billion of common stock equivalent will be issued next month to employees in lieu of cash they would have otherwise received as pay.
The TARP payments will result in a roughly $5.1 billion loss. Citigroup will also terminate its loss-sharing agreement with the government on $301 billion of its riskiest assets. Canceling about $1.8 billion of trust preferred securities linked to the program will result in a $1.3 billion loss, the company said.
Citigroup fell to $3.86 in New York trading at 8:03 a.m., down from its $3.95 close on Dec. 11. The stock has tumbled 41 percent this year, valuing the lender at about $90 billion.
“We planned to exit TARP only when we were convinced that it was prudent to do so,” Pandit said in the statement. “By any measure of financial strength, Citi is among the strongest banks in the industry.”