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Banks, U.S. Spar Over TARP Repayment

Source: WSJ

Posted on 08 Dec 2009

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Citigroup Inc. and Wells Fargo & Co. are wrestling with the U.S. government over how much capital the banks will be required to raise to exit from the Troubled Asset Relief Program, according to people familiar with the situation.

The disagreements follow last week's announcement by the Treasury Department that Bank of America Corp. won approval to repay its $45 billion in federal aid. As part of its exit strategy, the Charlotte, N.C., bank then sold $19.29 billion in stock.

Officials at Citigroup and Wells Fargo have prodded U.S. officials to let them proceed under similar terms, people familiar with the matter said. But officials with the Federal Reserve and Treasury have told the two banks that they will have to raise more capital relative to what they are seeking to repay than Bank of America did.

Citigroup is looking to redeem $20 billion in preferred stock, while Wells Fargo got $25 billion from TARP. Citigroup executives have been told they need to raise $20 billion in common stock to leave TARP, these people said. Wells Fargo was told it would have to drum up billions of dollars in new capital.

With a stock-market value of less than $100 billion, Citigroup executives are worried about diluting shareholders by more than 20% if it issued $20 billion in new shares. "That's a pretty tough pill to swallow," said a person familiar with the New York company's discussions with the government.

Disagreements over capital-raising mean Citigroup is unlikely to repay its TARP investment in the foreseeable future, according to people familiar with the matter.

Wells Fargo, based in San Francisco, has expressed frustration with TARP ever since the program was launched last year. Bank executives have said they accepted the money only because they were forced to, though the aid has helped Wells Fargo absorb losses following its takeover of Wachovia Corp.

A Wells Fargo spokeswoman declined to comment, and a Citigroup spokesman declined to comment.

A Treasury official said banks "are pursuing discussions to understand what needs to be done to move ahead with repayment. We continue to believe that banks and our financial system are better off with private capital instead of government capital."

Citigroup and Wells Fargo executives are worried they could be at a competitive disadvantage if they don't quickly follow Bank of America out the TARP door. TARP recipients face pay restrictions that come with the taxpayer-funded aid. Citigroup also has foregone some non-U.S. investment opportunities, wary of being castigated for spending U.S. taxpayer dollars outside its home country, according to people familiar with the matter.

Bank of America is running advertisements this week that tout its repayment. "We'd like to say thank you to the taxpayers of America," one of the ads says.

Among the agencies that have a say in deciding when banks can leave TARP, the Fed has been especially reluctant to let them repay quickly, wary that mounting losses could leave the banks strapped for capital, according to people familiar with the matter. Treasury officials are been eager for banks to repay TARP, hoping to use excess money for other purposes.