Citigroup in $20.5bn cash call to repay bailout funds

Move will allow bank to pay executives and top traders bumper bonuses

Citigroup will be freed to pay bumper bonuses to its executives and top traders from the start of next month, even though the US government could still own a substantial stake in the financial giant until this time next year, under an agreement signed yesterday.

The deal represents a coup for Citigroup's management, but comes at a cost to existing shareholders. The bank said it planned a dollar-for-dollar fundraising to pay back the US government's bailout money, after the Treasury balked at allowing it to add substantial new leverage to its balance sheet.

Citigroup said it would raise $20.5bn (£12.6bn) in shares and equivalent financial instruments, as well as paying a $1.7bn sliver of its employee bonuses in shares instead of cash. The US Treasury holds $20bn in preferred stock of Citigroup as a result of the emergency cash injections it made during last year's financial panic, and will be repaid that money immediately.

However, taxpayers handed Citigroup $45bn in all last year, under the bailout scheme known as the Troubled Asset Relief Program, or Tarp. The other $25bn was converted into shares, which the government said will be sold over the course of the next six to 12 months. A first tranche of up to $5bn of the government's shares will be sold in the market in the next few days, reducing its stake from 34 per cent.

The government is also tearing up a guarantee which had put the US taxpayer on the hook for losses in a $301bn portfolio of Citigroup's mortgage-related investments and other credit derivatives. Citigroup will no longer be designated a firm in receipt of "exceptional financial assistance", and therefore not subject to caps on pay for its top 100 earners from the start of 2010.

"The Tarp was designed to provide assistance until banks were in a position to repay it prudently," Vikram Pandit, Citigroup's chief executive, said yesterday. "We owe the American taxpayers a debt of gratitude and recognise our obligation to support the economic recovery through lending and assistance to homeowners and other borrowers in need."

Citigroup's shareholders have been battered by the losses at the firm, and their stakes have been repeatedly diluted as the company raised new capital. The latest issuance brings the total number of shares in existence to about 29 billion, up from just 5 billion before the crisis erupted.

Chris Kotowski, an analyst at Oppenheimer, called the exit from Tarp "a mixed blessing". He said: "It is disappointing that the plan began with a capital raise and ends with the sale of the government's common stock, rather than the other way around. Even after this ... the government will still own about 22 per cent of the common stock. It almost seems as if the most dilutive route possible was taken."

Mr Pandit and Dick Parsons, Citigroup's chairman, had hoped not to need such a large fundraising, but regulators were concerned that Citigroup did not pile additional risks to its balance sheet. Citigroup argued that it was already one of the best-capitalised big banks.

*Wells Fargo is selling $10.4bn in new stock to help repay all $25bn in bailout aid it received from the government at the height of the market meltdown last year. The move will extricate the San Francisco-based bank from the pay restrictions and close oversight that came with the bailout programme.

Voices
On the last day of campaigning before the polling booths open, the SNP leader has written to voters in a final attempt to convince them to vote for independence
scotland decidesIs a huge gamble on oil keeping First Minister up at night?
Arts and Entertainment
Rosalind Buckland, the inspiration for Cider with Rosie died this week
booksBut what is it like to be the person who inspires a classic work of art?
Life and Style
techApple has just launched its latest mobile operating software – so what should you do first?
News
A male driver reverses his Vauxhall Astra from a tow truck
newsThe 'extremely dangerous' attempt to avoid being impounded has been heavily criticised
PROMOTED VIDEO
Arts and Entertainment
Lionel Messi in action for Barcelona
filmSo what makes the little man tick?
Arts and Entertainment
tvReview: An undercooked end (spoiler alert)
News
i100
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Pharrell dismissed the controversy surrounding
musicThe singer said 'the last thing I want to do is degrade'
Sport
Cesc Fabregas celebrates his first Chelsea goal
footballChelsea vs Schalke match report
Arts and Entertainment
Toby Jones (left) and Mackenzie Crook in BBC4’s new comedy The Detectorists
tvMackenzie Crook's 'Detectorists' makes the hobby look 'dysfunctional', they say
Life and Style
fashion

Olympic diver has made his modelling debut for Adidas

News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trainee Recruitment Consultant Birmingham

£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Recruitment Consultant - Soho - IT, Pharma, Public Sector

£20000 - £25000 per annum + OTE £35,000 first year: SThree: The SThree group i...

Sales Executive

£20 - 24k (Uncapped Commission - £35k Year 1 OTE): Guru Careers: We are seekin...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week