Citigroup Inc. could easily repay a $20 billion preferred investment by the government, but the bank must show it can raise new capital from private investors first, Chief Executive Vikram Pandit said Wednesday.
The U.S. government converted $25 billion of its preferred securities in Citigroup into common shares at a price of $3.25 earlier this year. The government is free to sell the stock whenever it wants to, Pandit noted.
That leaves $20 billion of Citigroup preferred securities that the government owns, Pandit explained during a presentation to analyst and investors in New York that was broadcast on the Internet.
“You could easily see this being paid off,” Pandit said. It wouldn’t affect Citigroup’s tier 1 common equity ratio, he added. That ratio is a measure of equity capital that’s become much more important in the wake of the financial crisis.
But before repaying such government investments, there’s a technical requirement for banks to demonstrate that they can access capital in private markets, Pandit said.
“What that means and when we’re ready, we’ll talk about it,” the Citigroup CEO added.
Citigroup has been among the hardest hit of any large bank during the financial crisis. The government’s support of the financial-services giant has left it owning more than a third of the business.
The Wall Street Journal reported Tuesday that Citigroup has begun working on a plan to reduce the government’s stake.
Citi shares rose 1.9 percent to close at $4.20 on Wednesday.
Citigroup was hit by more than $6 billion in consumer loan losses during the second quarter. Pandit said Wednesday that he wouldn’t comment on consumer credit trends so far this quarter.
However, the CEO noted that when the bank reported second-quarter results, it was seeing early signs of moderating loss trends.
“Industry master trust data since then continue to underscore this trend,” he added. If loss trends continue to moderate, that will have an impact on how much money Citigroup adds to its reserves, Pandit said.
(c) 2009, MarketWatch.com Inc. Source: McClatchy-Tribune Information Services.