Friday, December 18, 2009

Last Bank Out of TARP Is a Rotten Egg

By Eric Jackson Senior Contributor

12/18/2009 1:00 PM EST

Earlier this week, both Citigroup (C - commentary - Trade Now) and Wells Fargo (WFC - commentary - Trade Now) announced that they were going to sell stock in order to get out from under the constraints put on them by the government when they needed help a year ago. Of the big banks, these were the last to get out from TARP.Wells Fargo sold $12 billion in stock at the beginning of the week, and on Wednesday night, Citigroup priced $17 billion for sale at $3.15 a share. It was only last week that Citi had floated the idea to the press of doing a capital raise at $4 a share. What's a 22% haircut between friends?

Citi's price was so much lower than expected that the government decided to hold back from selling $5 billion of its holdings as part of the offering. The offer price was actually a dime lower than the price at which the federal government bought its stake. Instead, the government said it would wait up to a year to sell its stake. It would be a political nightmare to have to explain to the American people that the government had lost money bailing out Citigroup.

These two banks are following the lead of others, including JPMorgan Chase (JPM - commentary - Trade Now), Goldman Sachs (GS - commentary - Trade Now), Morgan Stanley (MS - commentary - Trade Now) and Bank of America (BAC - commentary - Trade Now), which have already paid back the TARP. Bank of America was the last of these to pay back the government, and it raised the most money in the public markets to do this: $19 billion on Dec. 8.

Some have speculated that the tepid response to Citi's stock offering was because the market was fatigued after the stock sales of Bank of America and Wells in the last few weeks. I believe this logic is off. The market's response was tepid because there was a reason why Citi was the last one to go to the market to raise money. It has a lot of problems still facing it. Wells is in a similarly challenging position.

[This is an excerpt from the full article on To read the full article, click here.]

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