Sense on Cents

A number of banking institutions have repaid Uncle Sam’s TARP funds. The truth be told, a few of these institutions never wanted Uncle Sam’s money in the first place. Now we learn that the biggest financial beneficiary of Uncle Sam’s largesse, that being Citigroup, wants to begin discussions for Uncle Sam’s exit.

Be mindful that Uncle Sam (that’s you and me, boys and girls) owns upwards of 40% of Citi and that this giant would be dead and buried without Sam’s bailout. If I am Citi, I would also like to get out from under the grand old Uncle’s watch. The Wall Street Journal highlights this story in writing, Citigroup Explores Bid to Pare U.S. Stake:

Citigroup Inc., eager to shed the stigma of being a ward of the state, is working on a plan to reduce the U.S. government’s 34% stake.

Top Citigroup executives have been devising plans for a possible multibillion-dollar stock offering in which the New York company would issue new shares to the public, while the Treasury Department would sell at least a portion of its Citigroup holdings, according to people familiar with the matter.

Citigroup hasn’t held in-depth talks with the government. Over the weekend, Citigroup called a Treasury official and said the company wanted to start talking about paring down the Treasury investment, according to people familiar with the matter. On the call, Citigroup officials said they planned to raise outside capital in order to repay the outstanding bailout funds. Treasury officials responded to Citi that they didn’t object to the company paying back Washington as long as Citi first raised offsetting capital, these people said.

It is regrettable that the WSJ did not juxtapose this story of Citigroup’s grand vision to regain its independence with the fact that Citigroup continues to milk Uncle Sam via the FDIC-backed debt program. What is that?

The FDIC-backed debt allows Citigroup to issue debt which is effectively government guaranteed. In the process, Citi generates a significant cost savings because this debt falls into the ‘heads we win, tails you lose’ category. How much of this ‘milk’ did Citi just suck? Try a nice steady stream totalling $5 billion. The Financial Times sheds some light on this ‘stall’ in writing, Citi Raises $5 Billion in Bail-Out Bonds:

People close to the situation said Citi was in early talks with the US Treasury over a plan that would enable the company to raise capital by selling shares and enable the authorities to pare their holding.

But Citi’s decision to sell two and three-year bonds backed by the Federal Deposit Insurance Corporation could reinforce the perception that the bank, which has received $45bn in federal aid, is still not back to full health.

The hypocrisy of it all is par for the course, but for Citi, this milk tastes Mmmm…Mmmmm good!!

LD

This entry was posted on Wednesday, September 16th, 2009 at 11:42 AM and is filed under Citigroup, General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.