Maybe we jumped the gun yesterday when we wrote that Citigroup would likely soon join Bank of America in repaying its TARP bailout aid and thereby remove U.S. compensation czar Kenneth Feinberg's authority to dictate how much the bank can pay top performers. A story in Bloomberg News this morning casts serious doubts on our initial assumption.
"Executives at the New York-based bank are growing frustrated because they can't sell stock to raise money for repayment until the Treasury signals when and how it will unload its 7.7 billion (Citigroup) shares," Bloomberg reports, citing unnamed sources. "For almost three months, executives at the bank have tried to persuade Treasury to move ahead with a sale." It says the shares' current market value is $6 billion more than the government paid for them, a gain of about 25 percent.
Raising new capital in the market is a pre-condition for Treasury to approve any institution's request to repay TARP funds. But investors would probably shun any Citi equity offering as long as the government continues to hold a 34 percent stake.
Staying within TARP would leave Citi as the only bank still under Feinberg's compensation watch. That could greatly impede efforts to recruit and retain talent.
The story also points out a second possible obstacle: Citi might remain subject to Feinberg's authority even if it repaid its TARP aid, due to $301 billion of government asset guarantees for its home loans and mortgage-baced securities - guarantees the bank "has no plans to terminate," according to Bloomberg.
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