Why Hasn't Citigroup (C) Repaid TARP Funds

The program Bank of America (NYSE:BAC) has announced to repay the TARP funds it received is a modest vindication for its retiring CEO Ken Lewis. He has proved that his firm, which has rolled up Merrill Lynch and Countrywide in the last year, has been operated well enough to come up with $45 billion to give back to taxpayers. B of A joins the club  of TARP-free firms that includes Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS),and JP Morgan (NYSE:JPM).

Conspicuously missing from the list of firms that are leaving the program is Citigroup (NYSE:C)

Citi still owes $45 billion in TARP money and it has not made any announcement about its plans to pay the money back. The Treasury is anxious to end the TARP program as a demonstration that the credit crisis has ended. But, the aftertaste of the bailout will not be gone until all the TARP funds are repaid.

The Bank of America announcement puts pressure on Citi to disclose when and how it will repay its obligation. If the firm does not make a announcement before the end of the year, it will send a signal to Wall St. that the bank still has balance sheet problems that are much worse than those of its peers. That will raise the question once again whether the company is viable as a standalone operation or whether it needs to sell of some of its largest divisions. The federal government virtually controls the Citi board, so if the Treasury and Fed become impatient, they could pressure the big bank into a radical restructuring. The idea would not be novel. The Wall Street Journal recently reported that two candidates for the CEO job at Bank of America believed that the firm would be better off  broken into small pieces.

Citi was always the weak sister among the money center banks. A year ago, “Citigroup and the government identified a pool of about $306 billion in troubled assets. Citigroup would absorb the first $29 billion in losses in that portfolio. After that, three government agencies — the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. — would take on any additional losses, though Citigroup could have to share a small portion of additional losses,” the Journal wrote. The size and scope of that program was not matched in any other program the government created during the credit crisis.

Citi may not announce an exit from TARP this year. If it does not, it is still in more trouble than the government will readily admit or than most investors realize.

Douglas A. McIntyre