Citigroup to repay $20b from bailout

December 15, 2009|Associated Press

NEW YORK - Citigroup said yesterday that it is repaying $20 billion in public bailout money, freeing the banking giant from the close scrutiny and pay restrictions that came with the rescue program.

The government also will sell its one-third stake in the company.

Paying back the government gives an immediate lift to Citigroup’s reputation and will save the bank $1.7 billion a year in dividend payments, but it 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 saying Citi is on strong enough financial footing to stand on its own. It’s a far cry from the situation at the beginning of the year, when some analysts were saying Citi could fail.

“It gets rid of the stigma,’’ FBR Capital Markets analyst Paul Miller said.

Citigroup was among the hardest hit by the credit crisis and rising loan defaults, and received one of the largest bailouts of any bank. The government gave Citi $45 billion in loans and agreed to protect losses on nearly $300 billion in risky investments.

Citi will now turn its attention to shedding the rest of its troubled mortgage portfolio and other risky assets.

At the same time, the bank is trying to build up core businesses such as securities underwriting and institutional banking, where it faces heavy competition from banks that suffered less during the financial crisis. The bank also wants to build up its consumer banking business.