You may remember that last year Citigroup (C) got a $25B bailout that was much bigger than the rest of the big banks. Now — about a year later — the company is about to pay dearly for the taxpayer provided lifeline.
In today’s market, the TARP’s 27% take in Citi has grown in value to $33B. And as the bank contemplates it’s payback, the ultimate size of the deal may be the largest in Wall street history… and may net U.S. taxpayers another cool $8B for their trouble. (Federal taxpayers received a 23% annualized return on their investment in Goldman Sachs when that wall street firm paid back it’s bailout.)
Leading financial firms, including J.P. Morgan Chase and Morgan Stanley, are vying to be chosen as the deal’s underwriters to gain the prestige of managing a historic stock sale as well as the fees from investors who buy the shares. To improve their chances, some big banks, such as Goldman Sachs, are offering their services to the Treasury Department at almost no cost.
The windfall expected from the stock sale would amount to a validation of the rescue plan adopted by government officials during the height of the financial panic, when the banking system neared the brink of collapse. A year ago, Citigroup’s stock hovered around a dollar a share, and the bank’s future seemed in doubt. On Friday, the stock closed at $4.31.
If the sale proceeds as planned, Citigroup would be able to cut nearly all of its ties to TARP and the Obama administration can continue to highlight the profit generated from the rescue of big banks.
“It’s unprecedented to do [a stock sale] of this size right after the financial industry has been so battered,” said one industry official on Friday. “It’s just a very bullish sign.”
Citigroup was among nine major banks that were the first to take bailout funds in October 2008, and all have returned their federal loans. In addition to these repayments, the Treasury has received interest, dividends and about $3.5 billion from the sale of warrants, which are contracts allowing a holder to buy a company’s stock in the future.
To many it is now clear that rescuing large the Wall Street firms has come at a much lower cost to taxpayers than many had expected. In fact, so far the investment program has produced all net positive results for the U.S. Treasury.