Citigroup gets greenlight to pay back $20 billion bailout

Daylife/AP Photo used by permission

Citigroup has been given the go-ahead by the US treasury to repay its $20bn of government bailout money, a day after President Barack Obama accused Wall Street institutions of handing back funds simply in order to escape curbs on multimillion dollar bonus payouts.

The US bank, which teetered on the brink of collapse at the height of the financial crisis last year, is one of the few major US banks still supported by taxpayers’ funds. Its repayment plan follows a similar move earlier this month by Bank of America, leaving Wells Fargo as the last nationwide bank yet to institute repayment.

To raise the money, Citigroup intends to issue $20.5bn of stock and debt.

In total, the treasury pumped $45bn into Citigroup to prevent the bank from collapsing, although $25bn of this was converted into a 34% stake. The government, which has benefited from a 20% appreciation in Citigroup’s share price, said it will sell its shares in an “orderly fashion” over the next 12 months.

The plunge in Citigroup’s fortunes during the worst of the crisis was so severe that the bank was ejected from the blue-chip Dow Jones Industrial Average. Its share price slipped 4% on Monday as investors anticipated dilution in their holdings by Citigroup’s plan to issue a large amount of new stock.

I don’t give investment advice – though I’ve been having a good year – so, I have no suggestions about how to treat Citi’s stock issue.

I’m certainly pleased to see that taxpayers will be making 20% on our share of this TARP bailout.

2 thoughts on “Citigroup gets greenlight to pay back $20 billion bailout

  1. Cinaedh says:

    I am vastly confused, which presumably is the plan.

    When I used to get loans, I used to pay large amounts of interest on them. I couldn’t just pay the money back to the bank and say thanks.

    Where’s the interest on the loan? How much is it? It should be in the tens of millions, shouldn’t it? Am I missing something important here?

    On a totally different topic, I can see where the stock rising 20 percent is a good thing for the taxpayer but that’s just the risk/reward system of purchasing 34 percent of someone’s stock, right?

    It was up 20 percent but it just went down 4 percent on Monday, didn’t it? Right now that 20 percent is actually 16 percent, isn’t it? Can’t it go much, much lower over the next year, until the government finally sells it? Maybe I’m missing something again.

    They’re raising the money to pay back the debt with stock and debt. Isn’t that the sort of thing that got them in trouble in the first place? Creating imaginary money and pretending it’s real, while giving the real money to the senior executives?

    I’m not even going to mention credit card interest rates doubling and tripling and doubling again.

    I tend to trust the judgment of my knowledgeable friends but in this case, I simply don’t understand what’s actually happening here.

  2. eideard says:

    Yes, 16% – today. Though I own one incredibly successful banking stock – no, it ain’t American – up 124% since the American-led crash. I don’t consider myself any expert in banking. My wife is.

    It will take all of a year to unload the Fed stock to keep from radically affecting the market.

    There were basic statements on the process from both Obama and Sheila Bair, today. Geithner last week. Google is your friend if you care to pursue the research.

    Re-regulation ain’t easy; but, it’s only been under critical attack for about 8 years. Step-by-step it’s being restored.

    There are a few other investors in Citi who also have a vested interest in keeping that value up and increasing. They mostly live in the Middle East. 🙂

    The credit card hustle is a completely different topic – having to do with greedy bastards grabbing an extra chunk before new laws come into effect before the end of winter. The original laws have been corrupted and watered down for 30-40 years.

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