Updated for latest share price.
NEW YORK (
ability to negotiate a repayment plan with the U.S. government to exit the Troubled Assets Relief Program is a major coup for CEO Vikram Pandit, who has been criticized over his leadership role at the troubled firm, but it doesn't mean the company or Pandit is out of the woods yet.
on Monday reached terms to pay back $20 billion in trust preferred securities and terminate its loss-sharing agreement as part of Citigroup's bailout package. Citigroup said it will immediately issue $20.5 billion of capital and debt, made up of $17 billion of common stock, with an over-allotment option of $2.55 billion. It also will issue $3.5 billion of tangible equity units.
In conjunction with the repayment, the U.S. government will begin unloading its 34% stake in Citigroup and plans to be completely out by the end of 2010.
Citigroup was apparently pressuring regulators to get a deal done for this week, especially since
Bank of America
completed its repayment of $45 billion in bailout funds on Wednesday.
has had a tough year, but the sealing of this deal to begin removing the TARP shackles is a positive step.
"It is sort of a little bit of a lifesaver for him," says Alois Pirker, research director at Aite Group, a Boston-based research and advisory firm.
"He has some breathing space again now by being much less restricted by the government in terms of what he can do," Pirker says. "Clearly he has done his duty in terms of catching up with Joneses and being able to repay" TARP funds.
But questions about Citigroup's long term strategy persist, particularly since it will be impacted -- at least in the near future -- by capital needs and whether there will be a full economic recovery next year, Pirker cautions.
"You lose the safety net, it gives you more freedom, but on the other side it gives you more risks," he says.
Citigroup received $45 billion from the U.S government in late 2008. The company along with
and Bank of America were arguably perceived as the three surviving financial institutions most troubled by the crisis. Citigroup showed itself aware of the negative connotations of this perception, making a point in its statement to say it would no longer be deemed a beneficiary of "exceptional financial assistance" once the payback goes through.
Observers have differed in whether Citigroup should rush to repay the bailout funds, given that it is still saddled with troubled assets and bad loans, perhaps more so than any other large bank. But there are also the benefits of TARP repayment to consider, including the lifting of compensation restrictions that should pave the way for retaining top talent and to competitively bid for bankers.
Tim Connolly, CEO of Corporate Strategies, a turnaround consulting and partnering firm that focuses on hedge funds and small-cap companies, says that 2010 will be a make or break year for Pandit. "If it's not turned around in 2010 by third quarter, he is looking at the exit," he says.
"The reality is government is the biggest shareholder," and is likely to continue to exert significant influence on how Citigroup is run, Connolly says. "I think he is going to be given some latitude, but I am betting the
Office of the Comptroller of the Currency is going to be watching very carefully on the internal operations of the bank."
Citigroup shares were down 5% to $3.74 in early afternoon action. Volume was already at 458.4 million, above the issue's trailing three-month daily average of 452.5 million.
--Written by Laurie Kulikowski in New York.