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Tue, Dec 08, 2009 - Page 10 News List

Treasury to tie Citigroup stake sale to TARP

BROADER PLANUS officials are concerned that a sale of its 7.7 billion shares in the bank could weaken investor demand if Citigroup were required to raise capital

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The US Treasury Department aims to hold off on selling its 34 percent stake in Citigroup Inc until the bank and regulators agree on a broader plan to repay all obligations remaining from last year’s US$45 billion government bailout, a source close to the department said.

Treasury officials are concerned that a sale now of its 7.7 billion shares in the New York-based bank may weaken investor demand should Citigroup subsequently be required to raise capital as a condition of exiting the bailout program, said the source, who declined to be identified because the government has not discussed the plan publicly.

Citigroup executives have pressed Treasury for at least three months to sell the stake as a first step toward leave the bailout program, according to people familiar with the matter. They want to escape government-imposed pay limits that may make the company vulnerable to employee-poaching by unfettered rivals. Bank of America Corp, the only other large US bank under pay limits, last week announced a plan to exit the program.

“This should be well thought-out for the benefit of all constituencies and in this case that includes shareholders, the government and the taxpayers,” said Dennis Santiago, chief executive officer of analysis firm Institutional Risk Analytics in Torrance, California.

“Just because Bank of America goes doesn’t mean you have to rush Citigroup,” he said.

The government is trying to wind down bailout programs extended as financial markets convulsed late last year. US Treasury Secretary Timothy Geithner said in an interview on Friday that most taxpayer money injected into banks through the Troubled Asset Relief Program (TARP) would eventually be recovered.

While holding off on a sale of its Citigroup stake, the Treasury has pushed regulators behind the scenes to accelerate discussions with all large banks about their plans to exit TARP, the person close to the department said.

Last month, the Federal Reserve asked nine of the biggest US banks to submit plans to repay the government’s capital injections. In testimony last week before the Senate Banking Committee in Washington, Federal Reserve Chairman Ben Bernanke said Bank of America received approval to exit TARP only after regulators “felt it was safe and reasonable and appropriate.”

Charlotte, North Carolina-based Bank of America, the biggest US lender, agreed to raise at least US$18.8 billion of capital, a press release said on Wednesday. It said later that it had raised US$19.3 billion.

JPMorgan Chase & Co, Goldman Sachs Group Inc and Morgan Stanley, all based in New York, repaid their bailout funds in June. San Francisco-based Wells Fargo & Co, which still has US$25 billion of TARP money, isn’t subject to pay limits because it never needed a second helping of bailout funds, as Citigroup and Bank of America did.

In October, Citigroup CEO Vikram Pandit, 52, said he was “focused on repaying TARP as soon as possible.”

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