Citigroup Inc. Repays $20 Billion TARP Loan

Citigroup Inc. nearly collapsed back in November 2009, when customer’s lost trust in the bank and the government had to infuse $20 billion and Citi issued $7 billion in trust preferred securities to the Federal Deposit Insurance Corp. in exchange for lost guarantees for $306 billion in securities.

On Monday, Citigroup announced that it will sell $20.5 billion in stock and debt in order to repay the TARP loan. Yet the government still owns a large chunk of the stock, 34%, and plans to sell an additional $5 billion of its holdings as the bank repays TARP, and it will continue to own 23% for at least another six months to a year.

While Citigroup Inc. stock, “C,” fell 8% on Monday after the widely expected news was released, in the long run, the repayment of TARP money is good for stock holders as the bank bought its freedom from the government. The depreciation in stock was due to the bank’s need to offset the loss of government guarantees to block bad securities connected to defaulted mortgages, and the bank’s decision to raise $20 billion in trust securities that the government owns in TARP money.

There is still a long way to go for Citigroup Inc., but perhaps we are finally seeing the beginning of the recuperation of the financial sector as Bank of America last week announced it is repaying its TARP loan by raising $19.3 billion to repay $45 billion in government TARP money.

To see the original Wall Street Journal article click here!

To apply for a merchant cash advance click here!