Citigroup Frets Over TARP Taint

Citigroup (C Quote) Chairman Richard Parsons said Monday that while the government's cash infusion is keeping the troubled bank alive, it will also "disadvantage" the company over the long term.

Citi is undergoing a conversion of $58 billion in preferred stock. A portion of the stock is held by private investors, but much of it was issued to the federal government in exchange for funds from the Troubled Asset Relief Program. The move will bring Tier 1 and tangible capital levels to about twice the mandated amount, Parsons said.

However, it is also hindering a core element that will allow Citi to prosper over the long term -- employees.

TARP funds "will disadvantage Citi over time to attract and retain" the most talented employees, Parsons said at an economic conference hosted by Time Warner.

While the government is trying to help the firm, he added, "it's still the government." Key talent prefers working for institutions without as much scrutiny and uncertainty about pay packages.

He also deflected criticism of Citi's failure to manage risk effectively, which has ultimately given the government about 35% of the firm. He blamed the financial crisis on new derivative technology whose fortune was unpredictable, as well as "human nature" that caused management, regulators and investors to believe the economic bubble would never burst.

Because Citi is so large and interconnected to the global markets, he said, it couldn't help but be more wrapped up in the mess and more damaged than competitors like Bank of America (BAC Quote), JPMorgan Chase (JPM Quote) and Wells Fargo (WFC Quote).

It will take Citi much longer than those firms to restructure and pay back government funds, Parsons said. He didn't provide a time frame.

On a personal note, Parsons reflected on his history in restruturing troubled companies, including his old haunt, Time Warner(TWX Quote), where he sat on the stage. When asked about Citi's repayment of TARP, he noted it's a question he gets asked out in the street.

"They used to run up to me and say, 'What's with the AOL thing?' " said Parsons. "Now they run up to me and say, "What's with the TARP thing?' "