Today, Citigroup Inc. (NYSE: C) repaid $20 billion in TARP funds it received during the financial crisis, as promised in recent weeks. Last week Citigroup sold common stock to raise the cash it needed to repay the government, and the Treasury department plans to begin selling its 34 percent stake in the firm as the stock price rises.
This payback comes at an important time for the firm, as the year ends and bonus decisions are made, being out of the TARP program allows the firm to determine bonuses any way it chooses, and is not covered by the pay restrictions that are attached to TARP institutions. These restrictions could have jeopardized the firm’s ability to award top talent, and may prevent headcount losses.
The Obama administration’s pay czar, Ken Feinberg, begrudgingly said in a letter to the company that the repayment officially removes the firm from executive pay and bonus restrictions. Feinberg further noted that his approval will not be needed for 2010 pay packages for any employees, but executive compensation for 2009 will still be subject to tighter restrictions. In October, Feinberg had ruled that the top 25 executives at companies receiving exceptional assistance from the bailout fund would have their pay capped in most cases at $500,000 for 2009.
In light of the pay restrictions, which were imposed after the firms received TARP funds, banks had been scrambling to repay the government to avoid the restrictions. Restricting compensation would have surely driven top performers to unregulated firms, foreign institutions, and hedge funds (taking their income, and tax dollars with them in some cases). This loss in intellectual capital and experience could have put the firms at a competitive disadvantage in the coming years, and jeopardized their ability to continue.
Also on Wednesday, Wells Fargo & Co. repaid the $25 billion in TARP funds it had received as well. In total, the Treasury has received $164 billion in repayments, as all the National banks that received assistance have exited the program early, and repaid in full, with interest. Now, the pay restrictions will only cover American International Group (NYSE: AIG), Chrysler, and General Motors. These firms have not announced intentions or a plan to repay their TARP funds, and based on recent financial news from the firms, it does not seem to be imminent.
