Citigroup, whose future looked uncertain as recently as the beginning of this year, will repay $20 billion, while Wells Fargo will repay the $25 billion it received. Both banks announced significant capital raises to repay the money, and the government also will sell the one-third stake it holds in Citigroup.
The two are the last major national banks to exit the Troubled Asset Relief Program, which the government put in place at the height of the financial crisis in the fall of 2008.
Most other national banks have exited the program, releasing them from strict compensation limits that banks had said were impeding their ability to attract and retain talent. Just last week Bank of America Corp. said it would repay the $45 billion it owed, just as it's trying to find a new CEO to replace Ken Lewis, who is retiring at the end of the year.
New York-based Citigroup is far larger than Wells Fargo, which is based in San Francisco, and the government took a bigger role in its oversight. Citigroup had taken $45 billion in rescue funds — among the largest bailout packages received by any bank — but the government converted $25 billion of that amount into the 34 percent equity stake, which it is now selling.
'It gets rid of the stigma'Allowing the banks to repay the funds and exit TARP, as the bailout program is known, signals a vote of confidence from the government in the ability of both banks to stand on their own. It's a far cry from the situation at the beginning of the year, when some analysts were saying Citi could fail and be taken completely over by the government.
Citi will sell $20.5 billion in stock and debt to repay the bailout funds. The capital raise will dilute current shareholders by between 20 percent and 25 percent depending on the sale price of the stock and debt, FBR Capital Markets analyst Paul Miller projected.
(2 of 2)Creating A Business Model from the Current Distressed Asset MarketplaceBank of America set to repay $45 billion in U.S. loans
