Citi, though, only has to pay back $20 billion because the remaining $25 billion was converted into a 34 percent ownership stake in the bank earlier this year. The government plans to sell that entire stake -- which has risen in value by more than 20 percent -- during the next year.
Who knows what the value will be next year when the government sells the preferred stock, it might be up another 20% as Citigroup releases itself from the shackles of government bailouts and increased scrutiny.
But what about the $300 Billion in other garauntees? Citigroup wants to end that as well.
The loss-sharing agreement will also end as part of the plan.
Yes that will end too...
And why is Citigroup opting to pay this back early and get back on its own 2 feet...Because the bailouts started by GWB/Paulson was going to be painful and ended with Obama/Geithner. Obama/Geithner made it incredibly uncomfortable and indeed painful for banks to stay in "bailout mode" as it should be. This is more of a reason for them to avoid situations again where they would be subjected to a bailout.
Compare this to the S&L debacle of the 1980s and there is no comparison, it literally took more than a decade to work out all the bailout money and we still lost more even in absolute dollars (not inflation adjusted) then we will with this bailout.
Is this early re-payment self-interested so Citigroup can resume determining its executive pay levels without government interference...sure there is some of that...but the real reason is...
Citi's announcement comes just days after Bank of America Corp. completed the repayment of $45 billion it received as part of TARP. Wells Fargo & Co. is now the lone remaining national bank that has yet to repay the government. San Francisco-based Wells Fargo received $25 billion
By being one of the only major banks still in the program puts Citigroup at a competitive disadvantage compared to its peers in the global marketplace competing for deals and capital. And this early re-payment is comming at a price to whom...the shareholders at least in the short run who will be diluted in their ownership value...exactly who we expect should bear the loss...
Repaying the bailout means Citi will no longer face heavy scrutiny and restrictions from the government, including caps on executive pay and dividends. However, the repayment comes at a heavy cost. Raising the new capital will significantly dilute current shareholders' stake in the company.
So who are the biggest shareholders?...the bankers and institutional investors.
I am sure Wells Fargo will follow suit as I predicted in my diary here
http://www.dailykos.com/...
Of course the doom and gloomers are saying this is all bad because now they will be able to pay their executives lots of money and that is not fair...well frankly that is not the point...the taxpayers are the point
http://www.dailykos.com/...
The other complaint is that these mega-banks are not lending to small business. Well you know what these banks are not designed to lend to small business...small and medium sized banks are designed to lend to small business...as an analogy would you fly a 747 on a commuter flight from LaGuardia NY to Albany NY? No you would fly a Turbo-Prop jet...
In the end the doom and gloomers are just really upset that the bailout as Obama/Geithner redesigned it worked wonderfully and exceeding all expectations in terms of return of capital to the taxpayers, minimizing losses to the taxpayers, getting shareholders and executives to bear the brunt of the financial mistakes of the decade of greed as well as teaching painful lessons to the banks that will lead to "don't do it again.
So where do we go from here? Jawboning banks to modify mortgages, passing historical re-regulation and reforms and banks on notice...hey you are on your own now.
GWB/Pauslon started the bailouts with no oversight, no strings...Obama/Giethner reigned in the bailout with pain, strings, ended it with the clear message sent to CIT and encouraged early profitable re-payment with executive compensation caps...wow...I am speachless!!!
These guys don't deserve criticism...they deserve a ticker tape parade!!!
Have a great Monday!!!
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