News and Finance

Citigroup Inc.’s plan to repay $20 billion of bailout funds and escape government-imposed pay limits is being hampered because the Treasury Department has yet to sell its 34 percent stake in the lender, people familiar with the bank said.

Citigroup officials such as Chief Executive Officer Vikram Pandit have been pushing a sale for at least three months. “The government’s holdings of common stock are not restricted,” Pandit said at a Sept. 16 investor conference. “They can sell it entirely at their discretion.” Chairman Richard Parsons said the same month that the bank must pay employees competitively to ward off poaching by rivals.

Executives at the New York-based bank find themselves in a situation where they can’t sell stock to raise money for repayment until the Treasury signals when and how it will unload its 7.7 billion shares, said the people, declining to be identified because the matter is under discussion. Investors may be reluctant to buy shares because a Treasury sale could drive down the price.

“The ball is in the government’s court,” said Chris Kotowski, an analyst at Oppenheimer & Co. in New York, who has a “market perform” rating on the bank’s shares. “It’s not Citibank’s decision to sell them or not sell them.”

Bank of America

Bank of America Corp.’s plan to repay $45 billion of bailout funds would leave Citigroup as the only large bank subject to compensation reviews by Treasury paymaster Kenneth Feinberg. Other bailed-out companies under his purview include insurer American International Group Inc. and carmakers General Motors Co. and Chrysler Group LLC.

Under pressure from Feinberg, the bank cut total 2009 compensation for its 25 highest-paid people by about 70 percent from 2008.

At the current market price, the Treasury’s shares are worth about $31.2 billion. Because the common shares were converted from $25 billion of bailout funds, that’s a paper gain of about 25 percent, or more than $6 billion.

Meg Reilly, a Treasury spokeswoman, declined to comment on whether the government has sold any shares or when it may do so. “Treasury does not comment on individual institutions as a general policy,” she said. Citigroup spokesman Jon Diat said he couldn’t comment.

Tax Considerations

Treasury hasn’t told Citigroup how or when it plans to dispose of the stake, the people said. The shares are held within the department’s Office of Financial Stability, run by Herb Allison, the former chief executive officer of retirement- services firm TIAA-CREF paperless payday loans. Allison reports to Treasury Secretary Timothy Geithner.

Treasury officials don’t want to sell Citigroup shares until the bank’s executives and regulators have agreed on how such an offering would fit into a broader plan to exit TARP, a person close to the department said.

Consideration of tax laws might also affect the timing of a Treasury sale, the people said. The bank might lose some of its $38 billion of accrued tax benefits if a Treasury sale triggered a technical ownership change, according to a Citigroup regulatory filing in October.

Citigroup got a total of $45 billion last year from the Treasury’s $700 billion Troubled Asset Relief Program. In September, $25 billion of that was converted into common stock, which the Treasury is free to sell at any time.

Pandit, 52, said in October that he was “focused on repaying TARP as soon as possible.” He said, “We’re going to do so in consultation with the government and our regulators.”

‘Not Cash’

In a report, CreditSights Inc. analyst David Hendler said Citigroup could repay the $20 billion of TARP funds by selling about $10 billion of common stock along with $10 billion or more of junior debt securities. Regulators may be keeping Citigroup in TARP because of lingering concern that the economy won’t recover quickly, Hendler wrote.

The company has almost doubled its cash holdings to $244.2 billion over the past year, the biggest such stockpile of any U.S. bank.

“It’s not a question of cash,” Kotowski said. “It’s a question how much the regulators will force banks to raise to clear themselves of the stigma of being a TARP bank.”

JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley, all based in New York, repaid bailout funds in June. San Francisco-based Wells Fargo & Co., which hasn’t repaid $25 billion of bailout funds, isn’t subject to Feinberg’s rules because it hasn’t received “exceptional assistance.”

Even if the Treasury sold its Citigroup shares and the bank paid off the remaining $20 billion, it still might be subject to the paymaster’s purview because it has $301 billion of government asset guarantees, the people said. Citigroup has no plans to terminate the guarantees, which remain in effect for 10 years on home loans and mortgage-backed securities and 5 years for other types of assets, the people said.

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