Citigroup's escape from TARP

Citigroup

Reports reveal that Citigroup and the US government are at loggerheads over how much money the bank needs to raise in order to exit the Troubled Asset Relief Program (TARP). What's more, negotiations over the disagreements may not be completed for several months, said people briefed on the matter yesterday.

According to sources yesterday, the problem lies in resolving issues related to how the government would get rid of its roughly 7.7 billion shares in the bank, not to mention how the government would stop insuring a pool of assets against further loss.

The pressure on Citigroup to exit TARP is growing, not least after Bank of America Corp. sold $19.3 billion and announced a rigid plan that would repay government money borrowed through the program. In addition, the longer Citigroup remains embroiled in the TARP program, the more it has to lose.

That's because the US government has a good deal of say over how the firm currently pays its top executives, which could hinder the bank's efforts to retain its best employees. What's more, there are reports circulating that suggest Citigroup's plan to leave TARP behind could be significantly more complicated than Bank of America's, largely because it has received more government support than its rival.

Excessive losses

According to reports in UK newspaper The Guardian, for instance, the US government currently owns about a third of Citigroup's shares, after the firm gave a big chunk of common stock to investors in exchange for preferred shares.In addition to this, the government also guarantees a $182 billion portfolio of Citigroup assets against excessive losses.

Now, in order to sell enough shares to leave TARP, Citgroup have to complete a deal in the next week or so, before capital markets close down in the final weeks of the year.

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