Citigroup to Repay $20 billion in TARP Funds; Government to Unload its Stake

Citigroup Inc. said today has reached an agreement with the Treasury Department under which it will repay $20 billion of the $45 billion it received through the Troubled Asset Relief Program.

Citigroup said in a press release that it will raise the money to exit TARP through the sale of additional common stock and debt.

The deal also calls for the Treasury to sell $5 billion of the $25 billion in Citigroup common stock it holds, through a secondary offering. The government will divest its remaining commons shares in the banking giant over the next six to 12 months.

Citigroup, like other big banks that got TARP money, has chafed over the government's involvement in its business affairs, including restrictions on executive pay, "golden parachute'' payments to departing employees and other spending.

But Citigroup's chief executive officer, Vikram Pandit, said the program worked as it was supposed to, providing financial support to his bank until it was in a position to repay the money prudently.

"We owe the American taxpayers a debt of gratitude and recognize our obligation to support the economic recovery through lending and assistance to homeowners and other borrowers in need,'' he said in a prepared statement.

Citigroup got $25 billion in taxpayer capital in the first wave of TARP investments in October 2008.  In return, it gave the government a special class of preferred stock, plus warrants to buy common stock.

When Citigroup's troubles deepened the following month, the Treasury advanced it another $20 billion, and agreed to cover the first $29 billion in losses on a portfolio of more than $300 billion in so-called "toxic securities.''

The government later converted $25 billion of its Citigroup preferred stock to common stock, to help strengthen the company's balance sheet by putting additional equity on the books.

Taxpayers now own 34 percent of Citigroup. The new offerings connected to the TARP repayment will dilute that stake, and could drive down its market value, at least in the short term.

As part of the repayment agreement between Citigroup and the Treasury, the loss-sharing arrangement on the toxic assets also will be dissolved.