Wells Fargo, Citi to Repay TARP

Citigroup and Wells Fargo, the last of the big bailout recipients, have begun the process of repaying their multi-billion dollar loans under the Troubled Asset Relief Program (TARP), but the market may sour the deal for Citi. Wells Fargo has already made moves towards expansion by buying out Prudential’s stake in the joint brokerage venture Wells Fargo Advisors. Citigroup, on the other hand, has encountered unexpected delays in its efforts to raise the capital necessary to get out from under the TARP.

Citigroup was going to repay back its federal loans in two stages. First, they would raise $20 billion from investors, which would immediately go to the government. Then, the Treasury Department would sell its own shares in Citigroup, which it had originally bought for $25 billion, in chunks, over the next six to twelve months. This was the plan on Monday.

On Wednesday, however, things had changed. In order to raise the $20 billion from investors, the bank had to offer its stock at a heavily discounted rate of $3.15 a share. However, this was 10 cents lower than the price the Treasury Department had originally paid for its 7.7 billion shares, $3.25. If the government sold its stock as originally planned, this would have meant taking a $770 million loss. And so, only days after it had reached a deal with the bank, the government decided that it will sell its stock gradually over the next 12 months and not sell any shares for at least 90 days.

No word yet as to whether this will impact the deal the Treasury Department had made with the bank to forgo billions of dollars in tax payments in order to help Citigroup pay back its government loan.