Citigroup Inc said yesterday it is repaying US$20 billion in bailout money it received from the US Treasury Department in an effort to reduce government influence over the banking giant.
The New York-based bank was among the hardest hit by the credit crisis and rising loan defaults. It has received one of the largest bailouts of any banks during the financial crisis. The government gave it US$45 billion in loans and agreed to protect losses on nearly US$300 billion in risky investments.
Citi, though, only has to pay back US$20 billion because the remaining US$25 billion was converted into a 34 percent ownership stake in the bank earlier this year. The government plans to sell that entire stake during the next year.
The loss-sharing agreement will also end as part of the plan.
Repaying the bailout means Citi will no longer face heavy scrutiny and restrictions from the government, including caps on executive pay and dividends. However, the repayment comes at a heavy cost. Raising the new capital will significantly dilute current shareholders’ stake in the company.
By approving the repayment, the government is essentially saying Citi is on strong enough financial footing to stand on its own. It’s a far cry from concerns at the beginning of the year, when some analysts were saying Citi could fail completely and be taken over by the government.
While the government believes in the strength of Citi, the bank is still facing losses and trying to streamline operations to maintain profitability that has been tenuous throughout the year, even as other big banks recovered.
Citigroup received the bailout as part of the Troubled Asset Relief Program. The program was launched late last year to help ailing banks manage through the peak of the credit crisis.
Nearly 700 banks of all sizes participated in the program. Most of the largest banks, like JPMorgan Chase & Co and Goldman Sachs Group Inc, quickly paid back the money they received because it carried restrictions such as caps on executive pay and dividends.
Many banks have bristled at strict government oversight.
Citi’s announcement comes just days after Bank of America Corp completed the repayment of US$45 billion it received in aid.
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