Citi and Wells Fargo to pay back bailouts

CITIGROUP and Wells Fargo yesterday became the last two major US banks to repay the bailout money they received from the US government.

This means they will escape the restrictions on cash bonuses imposed under the Troubled Asset Relief Program (Tarp).

Citigroup said it would repay $20bn (£12bn) while Wells Fargo will pay back $25bn.

The announcements came a day after President Barack Obama accused Wall Street firms of rushing to pay back Tarp money to escape government curbs on big bonus payouts.

The US Treasury pumped $45bn into Citigroup to save it from collapse last year, but $25bn was converted into a 34 per cent stake. The government intends to sell the shares in an “orderly fashion” in up to a year.

Citi plans to issue $20.5bn of capital and debt to raise the money to exit Tarp, comprised of $17bn of common stock, $2.8bn of prepaid common stock purchase contracts, and $700m of subordinated notes.

Wells Fargo will sell $10.4bn in stock to raise funds for its repayment.

Citi also struck a deal to pay bonuses in shares rather than cash next month. It will issue $1.7bn in stock to employees instead of cash they would have otherwise received as part of their compensation.

By the end of the year, taxpayers will have reaped $3.1bn of dividends and interest payments from Citi.

Analysts said the announcements “represent a positive step for Citi”.

Citi said the repayment would result in a pretax loss of $8.1bn and it will take another $2.1bn pretax hit from the cancellation of a loss-sharing agreement with the government.

“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,” said chief executive Vikram Pandit.

“Citi is raising a lot of capital and the government will still own a chunk of stock for six to 12 months, but net-net the announcements represent a big positive step for Citi in its turnaround,” said analysts at Deutsche Bank.