Citigroup in Race to Repay Bail-Out Funds

London, United Kingdom (PressExposure) December 07, 2009 -- Citigroup is racing against the clock to convince US authorities that it be allowed to repay $20bn of bail-out funds, with insiders and regulators arguing that unless the bank acts in the next 10 days it will have to wait for more than a month.

The short window for a decision on the repayment of funds from the troubled asset relief programme raises the stakes for Citi in its quest to free itself from the shackles of the government, which also owns a 34 per cent stake in the lender.

Separately, the Kuwait Investment Authority, the Gulf state’s sovereign wealth fund, has made a $1.1bn profit after selling its entire 5 per cent stake in Citi for $4.1bn – less than two years after acquiring preferred shares in the ailing bank during the financial crisis.

The sale earned the sovereign wealth fund a 37 per cent return on its investment.

Citi’s need to pay back the Tarp funds has been heightened by last week’s surprise announcement that Bank of America had raised $19.3bn to repay $45bn. That move left Citi and Wells Fargo as the only two big banks that have yet to repay Tarp and remain subject to the strict limits on compensation and operations that accompanied last year’s government cash injections.

People close to the situation said that unless Citi could launch the capital-raising effort required to pay back Tarp by the middle of next week, it would become practically impossible to do so until after it reports year-end results in mid-January.

Lawyers said it was not technically impossible to raise capital between the end of a quarter and the announcement of results but added that disclosure rules could make it difficult, especially for a company as complex and geographically diverse as Citi.

Citi’s executives have been lobbying Washington to be allowed to repay Tarp, arguing that the bank has cash reserves of more than $240bn and its financial performance is improving. However, Citi’s situation is further complicated by the US government stake.

People close to the situation said the government was willing to co-ordinate a sale of at least part of its stake with Citi’s own capital-raising but the tight timing – and the authorities’ lingering concerns over the bank’s health – might delay that.

Citi declined to comment but insiders acknowledged that unless it could launch a share offering by December 14 or 15, it would probably have to wait until at least late January.

BofA’s ability to raise $19.3bn – more than its $18.8bn target – in one day at a slight discount to the previous closing price underlined investors’ confidence in the ability of banks to rebound, especially when free from government restrictions.

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Press Release Submitted On: December 07, 2009 at 2:05 am
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