United States Treasury Secretary Timothy Geithner said on Thursday that the government doesn’t want banks to repay their TARP liabilities if it leaves them short on capital, but that may not be a problem for Citigroup (NYSE:C).
During a Congressional hearing on Thursday related to the Troubled Asset Relief Program, Geithner said “We are not prepared to have this money come back in a way that would leave the system or these institutions with inadequate capital to face their challenges ahead.”
Some analysts believe that Citigroup may be able to exit the Troubled Asset Relief Program and repay its debt to the government and be able to maintain strong capital reserves. Several sources have reported that Citigroup may raise up to $20 billion by selling new equities to help the giant bank buy back the preferred trust securities that it sold to the government.
Citigroup’s Tier 1 common capital ratio, a closely watched measure of capital, stood at 9.1% at the end of the third quarter. Bank of America’s Tier 1 common capital ratio will be at 8.4% after it completes its exist of the TARP program. If Citigroup pays back its government debt in combination with a capital raise by issuing new equities, the bank’s Tier 1 common ratio will end up higher than 9.1%.
Citigroup cold also opt to simply repurchase the trust preferred securities from the government, which would cause the bank’s capital ratios to take a one-time hit.
