Citigroup (NYSE: C) Planning to Repay TARP?

It looks like Citigroup (NYSE: C) is ready to board the TARP repayment train.

During the past 12 months, Citigroup has received large sums of money ($45 billion) as part of the Troubled Asset Relief Program (TARP). Now, in an effort to join the heard of banks who have paid back early, including Bank of America which announced similar plans just last week, Citigroup has announced intentions of their own and are in the process of scoping out a plan to do just that.

In order to pay back the TARP funds, the Federal Reserve and Treasury has required banks to show they have sufficient capital. So, Citigroup has announced plans of a $15 billion equity offering. This large common stock offering will further dilute the value of already diluted shares.

Although Citigroup is talking with the government about paying back the money, it is not clear if the deal is imminent, as to date the government has required institutions paying back that they will be self sufficient, and not come back to the door asking for funding in the near future.

Within the government, there is also much debate – the US Treasury department is apparently open to Citigroup’s plan to repay, while the Federal Deposit Insurance Corporation is less keen on the idea, citing potentially jeopardy of customer deposits.

The move is necessary for Citigroup, as the executive pay restrictions imposed on the TARP funded banks are de-centivizing executives to stay. Kenneth Feinberg, the Obama administration’s pay czar is expected to soon announce a new wave of pay restrictions for companies that have received government assistance.

Pay restrictions make it more difficult for Citigroup to keep its most talented employees and attract new ones, compensation experts have repeatedly said. TARP backed banks require regulatory approval on new hires, making their ability to compete with other offers quite difficult.

This payback also raised concerns from the investor community, as the first posted more than $120 billion of credit losses in the past 2 years, and continues to struggle generating profit from banking operations.

Treasury Secretary Timothy Geithner has maintained that the objective is to make sure the treasury exits TARP firms with a capital position of the institutions in a stronger place than when they intervened. While Citigroup has been on the right track for the past six months, convincing regulators that the institution can take off the training wheels this quickly will be a difficult sell.