The article about Wells Fargo and Citigroup agreeing to repay the loans they received from the federal government incorrectly said that Wells Fargo was issuing stock to the company's benefit plan in place of cash compensation to employees. The stock is being issued both to the benefit plan and to employees in lieu of some of their cash compensation.
Citigroup, Wells Fargo to repay bailouts
Tuesday, December 15, 2009
The federal government continued to wind down its bailout of the nation's biggest banks on Monday, reaching an agreement to eliminate its stakes in Citigroup and Wells Fargo.
The willingness of banking regulators to strike a deal with the two firms -- both of which continue to face serious problems -- underscored the eagerness of both sides to end an extraordinary period of federal support for the financial industry. Banks have chafed at some of the conditions placed on the federal rescue money, such as limits on executive pay, while the administration has been criticized for using taxpayer funds to bail out Wall Street.
All nine of the major banks that took bailout funds in October 2008 have repaid their federal loans.
Citigroup's departure will come in two phases. First, the company will raise money from investors to repay $20 billion in government loans as soon as possible. Then the Treasury Department plans to sell the shares it holds in Citigroup, which it bought for $25 billion, in chunks over the next year.
The government required Citigroup to replace its federal aid dollar for dollar with money from private investors, a much tougher condition than was imposed on other banks, to ensure that the company has enough money in reserve to weather its problems, a government official said.
Even so, Citigroup's ability to reach an agreement on any terms came much earlier than financial analysts had expected, and amounts to a significant triumph for chief executive Vikram Pandit, who had pushed hard to close a deal by the end of the year. Beginning in 2010, Citigroup no longer will be subject to special federal supervision, including limits on compensation for top executives.
"We owe the American taxpayers a debt of gratitude," Pandit said in a statement Monday, "and recognize our obligation to support the economic recovery through lending and assistance to homeowners and other borrowers in need."
Just hours after that announcement, Wells Fargo stated it would repay its $25 billion in federal aid partly by raising $10.4 billion in a stock offering. Executives stressed that the company has delivered $1.4 billion worth of dividends to the government.
Wells Fargo has been one of the most vocal critics of the Troubled Assets Relief Program. In March, Wells Fargo Chairman Dick Kovacevich accused regulators of forcing the company to take federal aid and called their approach to rescuing the financial system "asinine." On Monday, Wells Fargo executives were much more cordial.
"TARP stabilized our country's financial system when confidence in financial markets around the world was being tested unlike any other period in our history," chief executive John Stumpf said. "Now we're ready to fully repay TARP in a way that serves the interests of the U.S. taxpayer."
The moves will put pressure on the large regional banks, such as Sun Trust and PNC Bank, to repay their TARP funds, analysts said.
Slightly more than a year has passed since the Bush administration began the unprecedented program to shore up the banking industry through direct aid. At the time, those investments were expected to last three or more years. But Treasury Secretary Timothy F. Geithner said Monday that 75 percent of the money has been repaid with a "healthy profit."