Citi reaches deal on $20 billion of TARP repayment

US banking and financial services giant Citigroup today said that it had reached an agreement with the US government and its regulators to repay US taxpayers the $20 billion the government holds in TARP trust preferred securities and to terminate the loss-sharing agreement with the government.

Last week, Citi, that is now one-third owned by the US government, has been sounding out shareholders and regulators about a $15-billion fund-raising plan that could help it pay back some of the bail-out money it received from taxpayers last year. (See: Citigroup in talks to raise funds to repay bailout)

Vikram Pandit, CEO, said on behalf of the entire Citi board of directors today, "The TARP programme was designed to provide assistance until banks were in a position to repay it prudently. We are pleased to be able to repay the US government's trust preferred securities and to terminate the loss-sharing agreement. We owe the American taxpayers a debt of gratitude and recognise our obligation to support the economic recovery through lending and assistance to homeowners and other borrowers in need."

Ever since Bank of America repaid the $45 billion TAROP assistance (See: BoA repays $45 billion TARP funds)  by raising $19.5 billion through  a sale of new shares, the New York-based Citi has been under pressure to free itself from the debt burden and government oversight.

Citi will now immediately issue $20.5 billion of capital and debt, comprising $17 billion of common stock, with an over-allotment option of $2.55 billion and $3.5 billion of tangible equity units consisting of approximately $2.8 billion of prepaid common stock purchase contracts and approximately $0.7 billion of subordinated notes (recorded as debt).

In connection with Citi's offering, the US Treasury will sell up to $5 billion of the common stock it holds in a concurrent secondary offering. After the secondary offering, the US Treasury is subject to a 45-day "lock-up" period.