By Bradley Keoun and David Mildenberg
When Bank of America (BAC) CEO Kenneth D. Lewis announced plans to pay back the government on Dec. 2, Citigroup (C) CEO Vikram Pandit took the surprising news as a wake-up call. Early the next morning, several Citi executives called officials at the Treasury Dept. to discuss their options, according to a person close to the agency. They wanted to know how BofA negotiated such a quick exit from the Troubled Asset Relief Program and how Citi might follow suit.
Now Pandit is busy pressing regulators for an agreement that would allow the New York-based bank to repay its remaining $20 billion in funds from TARP. (In September the government converted $25 billion of Citi's bailout money into an equity stake in the bank.) Pandit's hoping to hash out a plan in the next week or so, say people familiar with the situation. With BofA wiring the money to Treasury on Dec. 9, Citi is the only big bank with so-called exceptional assistance. The designation, which Citi received after getting a second helping of aid, means the bank must comply with federal limits on compensation. Stuck under the government's watch, Citi risks losing top traders and bankers to rival companies dangling fatter paychecks. Citi spokesman Jon Diat declined to comment for this story.
The talks between Citigroup and its regulators could be more complex than those for Bank of America, whose lending operations are in better shape. The BofA discussions stretched over two months as regulators and executives tried to come to terms. In the case of Citi, Treasury is insisting that any exit strategy also include a formal process for selling the government's 34% equity stake in the lender, currently worth $30 billion. The parties also must address what to do with the government guarantees on $301 billion of Citi's riskiest mortgages, auto loans, commercial real estate, and other assets. Citi and BofA are "very different beasts," says Dennis Santiago, chief executive of research firm Institutional Risk Analytics.
For months, Citi hadn't made much of an effort to return the federal aid. Instead Pandit concentrated on winding down and selling businesses, as well as stockpiling cash, which has doubled over the past year to $244 billion. The bank was also battling with Treasury pay czar Kenneth Feinberg, who told Citi to cut total 2009 compensation for its 25 highest-paid people by about 70% from the previous year. In October, Pandit said he was "focused on repaying TARP as soon as possible." But it wasn't until after the BofA announcement that Citi started to make progress on talks with regulators, people close to the bank say.
If BofA's dealings are any indication, Pandit may not be able to move as fast as he hopes. The 62-year-old Lewis, who first indicated in the summer his desire to pay back the federal funds, ramped up his efforts in September around the same time he said that he would step down from the top spot at the end of the year. It helped his cause that BofA's profits had gotten a boost from the acquisition of brokerage Merrill Lynch, which accounted for a third of earnings in the first three quarters of the year. "Repaying TARP is a way for Lewis to say he did something good before he left," says Jonathan Finger, an activist investor whose family controls 1.1 million BofA shares.
Post a comment about this story in Reader Discussion…
Track and share business topics across the Web.
RSS Feed: Most Read Stories
RSS Feed: Most E-mailed Stories
RSS Feed: Most Discussed Stories
About Advertising EDGE Programs Reprints Terms of Use Disclaimer Privacy Notice Ethics Code Contact Us Site Map Press Room
©2009 Bloomberg L.P. All Rights Reserved.
Read Full Article »