Bailout

Be careful what you wish for, Vikram

By Felix Salmon

The WSJ adds color to the story of Citigroup’s flop of a stock offering on Wednesday. Citi, it seems, is deciding to blame the government, which allowed Wells Fargo to do its own TARP-exit stock offering at the same time. Treasury, of course, is having none of it:

Treasury officials said Thursday that… it was Citigroup’s idea to stage the ambitious stock offering, despite the government’s misgivings…

Earlier this fall, at the urging of the Treasury, the Fed and FDIC laid out the terms for Citigroup to leave TARP: It would need to raise roughly $20 billion in new capital.

Citigroup executives said that was an unnecessarily large amount, because the bank already had ample capital. They also warned federal officials last week that such an ambitious offering could fall flat, embarrassing Citigroup and the government, according to people familiar with the matter.

Despite such worries, Citigroup executives pushed ahead, fearful of becoming the last major bank still under TARP.

It seems here that Citi, at its highest levels, was pushing Treasury hard to allow it to exit TARP. Eventually, Treasury agreed, and Citi then pushed its equity capital markets team to get a monster stock issue out the door no matter what. The predictable result was that both Treasury and the equity capital markets team ended up wondering if everybody wouldn’t have been better off had nothing happened at all. But Citi’s leadership — and I’m looking straight at Vikram Pandit here — knew what it wanted: an exit from TARP, no matter what the cost. And that’s what it got.

Full post as published by Macroprudential on December 18, 2009 (boomark / email).