) --

Wells Fargo

(WFC) - Get Report



(C) - Get Report

appear green with envy over

Bank of America's

(BAC) - Get Report

plan -- and approval -- to

repay bailout funds quite soon

, perhaps by the end of the year

Their frustration over Bank of America's

surprise announcement

is understandable. Wells Fargo has consistently outearned and outperformed since receiving its $25 billion in Troubled Asset Relief Program funds, and Citigroup has made remarkable progress in its turnaround effort that would have been inconceivable a year ago.

But while the two banks may deserve kudos for their achievements, the TARP-payback game is all about capital. Neither of them appears to have enough of it -- at least once bailout funds are removed -- to meet strict regulatory demands.


capital concerns

have plagued Wells Fargo for months. (It has among the lowest capital ratios of the large banks, largely because of big initial writedowns on


bad debt, but its metrics have been held down by continued stress throughout its loan portfolio).

As outlined in an earlier



, Wells had a Tier 1 common risk-weighted ratio of 8.58% before acquiring Wachovia's troubled assets. The metric sank to 3.1% at year-end, and has since risen to 5.18%.

In the first round of TARP paybacks, the average bank that was strong enough to repay TARP, including

JPMorgan Chase

(JPM) - Get Report


American Express

(AXP) - Get Report


Goldman Sachs

(GS) - Get Report

, had a ratio of 8.43%, while weaker firms had an average ratio of 5.2%.

By that yardstick, Wells just reached the level of the average bank that wasn't able to repay TARP yet. Early Tuesday, Wells CEO John Stumpf told the audience at an industry conference in New York that he hadn't read anything about new capital ratios, according to

Dow Jones

, and declined to describe the company's plan for or timing of paying back TARP funds.

Citigroup faces a slightly different capital dilemma. It has plenty of Tier 1 -- more than any other large bank -- but a huge amount of it comes from Uncle Sam.

Citigroup reports only the basic Tier 1 capital ratio, which stood at 12.7% on Sept. 30, up from 8.19% ago, before the government's massive investments. The

Federal Reserve's

stress test found Citigroup's risk-weighted common metric to be a paltry 2.3% at the end of 2008. Because private investors weren't stepping up, the government converted a huge amount of preferred stock into common shares to boost Citi's capital levels further this year.

Citigroup now reportedly wants to pay back $20 billion in TARP funds, but that would require a $20 billion private capital raise. Considering that the bank's entire market cap is $100 billion, and that private investors didn't open their wallets when Citigroup's capital was depleted, the chances of that happening in the immediate future appear slim.

Regulators seem to want banks to prove that they can maintain a Tier 1 common ratio in the 8% to 8.5% range without government support before they can pay back TARP. Bank of America is raising $45 billion in fresh funds to do just that, after months of delicate negotiations. Its stock offering had strong enough demand to raise $19.29 billion -- $1.29 billion more than targeted -- making it clear that investors are ready to fill in TARP's shoes.

For Wells and Citigroup to reach that goal, it may require some more capital generation, some more bargaining, and some more time.


Written by Lauren Tara LaCapra in New York