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 Treasury Prices Sale of Citigroup Subordinated Notes for Proceeds of $894 Million, Providing an Additional Profit for Taxpayers on TARP Citigroup Investment


2/5/2013

  

Transaction Part of Treasury’s Ongoing Efforts to Wind Down TARP 

Treasury Fully Recovered the $45 Billion Invested in Citigroup through TARP, Plus an Additional Positive Return of $13.4 Billion 

WASHINGTON – Today, as part of its ongoing efforts to wind down and recover its remaining Troubled Asset Relief Program (TARP) investments, the U.S. Department of the Treasury announced that it had priced an offering of Citigroup subordinated notes. The expected proceeds from this offering will be $894 million, providing an additional profit for taxpayers on Treasury’s TARP investment in Citigroup. 

The subordinated notes were issued to Treasury in exchange for Citigroup securities previously held by the Federal Deposit Insurance Corporation (FDIC).  Those original Citigroup securities were issued to the FDIC in 2009 as consideration for the government’s support under the TARP Asset Guarantee Program (AGP).  The FDIC transferred those securities to Treasury on December 28, 2012, and Treasury exchanged those securities for subordinated notes on February 4, 2013 in order to maximize proceeds on the disposition.   

Including the expected proceeds from today’s transaction, Treasury received more than $58.4 billion in repayments and other income on its TARP investment of $45.0 billion in Citigroup – representing an overall positive return for taxpayers of more than $13.4 billion. (For additional details, see the chart below.) Prior to the transfer of securities by the FDIC in December 2012, Treasury had not held any other Citigroup securities since January 2011.   After the closing of today’s transaction, Treasury will not hold any securities in Citigroup.

“Today’s transaction is part of our continuing efforts to wind down TARP’s bank investment programs, which helped stabilize our economy during a severe financial panic and delivered a profit for taxpayers,” said Assistant Secretary for Financial Stability Tim Massad.

TARP’s overall bank investment programs have also delivered a significant profit to taxpayers. Including the expected proceeds from today’s transaction, Treasury has recovered $269 billion in repayments and other income through those programs compared to an initial investment of $245 billion – a positive return of more than $24 billion to date. In May 2012, Treasury outlined a strategy for winding down its remaining investments in TARP’s bank programs (approximately $8 billion principal value as of February 2013) through a combination of repayments, restructurings, and sales. For additional details, please visit, link and link.

Under the AGP – a joint program between Treasury, the FDIC, and the Federal Reserve – the government agreed to share potential losses on a $301 billion pool of assets held by Citigroup. As part of that AGP commitment, Treasury agreed to share losses of up to $5 billion. In December 2009, the loss-sharing arrangement was terminated at the request of Citigroup.  Because neither Treasury, nor the FDIC, nor the Federal Reserve was ever required to make any payment under the arrangement, and they have had no obligation to do so since December 2009, all income received through the program constitutes a net gain to the taxpayer.

In connection with the termination of the AGP, the FDIC agreed to transfer Trust Preferred Securities (TruPS) issued by Citigroup with an aggregate liquidation value of $800 million to Treasury upon the maturity of Citigroup debt issued under the FDIC’s Temporary Liquidity Guarantee Program (TLGP). On December 28, 2012, the final series of Citigroup debt issued under the TLGP matured, and the FDIC transferred those $800 million in Citigroup TruPS to Treasury. Subsequently, on February 4, 2013, Treasury and Citigroup agreed to exchange Treasury’s $800 million in Citigroup TruPS for Citigroup subordinated notes with an aggregate principal value of $894 million in order to maximize proceeds on the disposition. Treasury agreed to sell those Citigroup subordinated notes with an aggregate principal value of $894 million as part of today’s transaction.

Treasury fully recovered its TARP investment in Citigroup with a profit in 2010.  Previously, in September 2010, Treasury sold $2.2 billion in additional Citigroup TruPS that it had received in connection with the AGP. In December 2010, Treasury sold the final shares of Citigroup common stock that it received through the TARP’s Capital Purchase Program (CPP). In January 2011, Treasury sold the warrants it received through TARP to purchase common stock in Citigroup, providing an additional positive return.


Citigroup TARP Investment Summary

($ in Billions)

Capital Purchase Program (CPP) Common Stock Sales
(Final Shares Sold in December 2010)

$31.9

December 2009 Targeted Investment Program (TIP) Repayment

$20.0

September 2010 AGP TruPS Sale

$2.2

January 2011 Treasury Disposition of Citigroup Warrants

$0.3

February 2013 AGP Subordinated Notes Sale

$0.9

Dividends and Interest Payments

$3.1

Total Repayments/Income

$58.4

Total TARP Funds Disbursed[1]

$45.0

Positive Return for Taxpayers

$13.4

[1] Treasury invested $45 billion in Citigroup through the Capital Purchase Program ($25 billion) and Targeted Investment Program ($20 billion). As previously noted, Treasury also made a $5 billion commitment under the Asset Guarantee Program (AGP) that was never funded.

Treasury is also making significant progress winding down the overall TARP program. To date, including the expected proceeds from today’s transaction, Treasury has recovered more than 93 percent ($390 billion) of the funds disbursed through TARP ($418 billion). In December 2012, Treasury sold its final shares of AIG common stock, and announced its intent to exit its remaining investment in General Motors within the next 12-15 months, subject to market conditions. In January 2013, Treasury announced the full repayment with interest of its loan under the Term Asset-backed Securities Loan Facility (TALF), as well as the fact that it had fully recovered its investment through the Public Private Investment Program (PPIP). For more details on Treasury’s lifetime cost estimates for TARP programs, please visit Treasury’s Monthly 105(a) Report to Congress on TARP at this link.


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