Citigroup Chief Executive Vikram Pandit today thanked the U.S. government and American taxpayers for providing a vital $45 billion bailout infusion into the banking institution and reminded them of the 27 percent stake in Citi they still hold.
“American taxpayers still hold 27 percent of Citi’s common stock, and we look forward to helping them realize value on that investment,” Pandit said. “Citi owes a large debt of gratitude to American taxpayers.”
Pandit’s gratitude was part of prepared testimony for his appearance before the Congressional Oversight Panel, the official overseer of the government’s bailout facility, the Troubled Asset Relief Program, TARP.
Pandit reassured the panel of Citigroup’s return to stability, despite the massive write-downs Citi took during the financial crisis.
Citi is the third-largest general-purpose credit card issuer.
“Now, as a result of the government’s response to the crisis, our new team’s focused strategy and the commitment of all our employees, I am pleased to say we are in a far different and much healthier position,” Pandit said.
The healthier state, of course, is relative to the crisis level of 18 months ago. Citi is still grappling with mounting credit losses.
Recently, it projected a reduction in revenues of up to $600 million from the impact of credit card reform laws that went into effect Feb. 22.
Citigroup reported a fourth-quarter loss of $7.6 billion after taking charges from its bailout repayment – the results about even with expectations.
U.S. Treasury Assistant Secretary Herbert Allison also came before the Congressional Oversight Panel to explain the status and reasoning behind Citigroup’s bailout package.
Allison emphasized that not only did Citigroup repay its $45 billion, but that Treasury has realized a profit from its “investment,” and could realize additional profit if it were to liquidate Citigroup holdings acquired at today’s market evaluation prices.
She also addressed opposition that emerged from some quarters to the Treasury accepting Citigroup’s repayment – based on fears that the financial institution would be left vulnerable.
“Treasury believes replacing taxpayer dollars with private capital is exactly what it should be doing,” Allison told the panel in prepared testimony. “TARP has provided the temporary support that has stabilized the financial system. Banks are now more able to access the equity markets.”
She added that Treasury overall has received $170 billion in TARP repayments and large banks have raised more than $140 billion in private capital since TARP bailouts initiated in September 2008.
Citigroup received $45 billion from two Treasury bailout programs – $20 billion from the Targeted Investment Program and $25 from its Capital Purchase Program. Both fall under TARP’s umbrella.
The Treasury has realized an 8 percent dividend on Citigroup preferred stock from the invested $20 billion. In return for its $25 million investment, it received non-voting preferred stock that paid an annual dividend of 5 percent for the first five years.
Treasury has earned $2.8 billion in dividends as of December 2009. Moreover, Allison said that it would earn a positive return if current holdings from the original $25 billion CPP investment would be sold at current market valuations.
