Citigroup Does The Impossible: It Screws US Taxpayers AGAIN

[Uncle Max]

Citigroup Does The Impossible: It Screws US Taxpayers AGAIN
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The nausea we feel with respect to Citigroup (C) and our Treasury Secretary just hit a new high.

Perhaps it's true that civilization would have ended if we had just allowed Sandy Weill's colossal junk pile to finish blowing itself up. But at this point that seems a more attractive alternative.

In case you missed it, here's the latest outrage:

As of yesterday afternoon, the United States taxpayer owned 34% of Citigroup's common stock, in addition to a massive amout of TARP preferred stock. The US taxpayer did not own 34% of Citigroup's common stock by choice. We owned it because our government decided to bail Citigroup out not once, not twice, but three times.

In the last of these bailouts, the Treasury Secretary Tim Geithner gave Citigroup the latest in a long series of gifts, by converting some of our preferred stock to Citigroup common stock at $3.25 a share. This conversion price was too high and resulted in an invisible bailout/gift that most people missed. It also left taxpayers with the dubious privilege of holding Citigroup common stock.

Common stock is lower in the capital structure than preferred stock, meaning that it will be the first thing to be wiped out if Citigroup starts losing boatloads of money again. As Citigroup investors know all too well, common stock also carries with it a high possibility of loss: If the stock price falls, we're toast (whereas with preferred stock, we get our money back when the company redeems it).

Given all that, the first taxpayer holding that Citigroup should have sold should have been the common stock.

Citigroup's stock has been trading at $4 for several months. It is heavily traded. We could have dumped our entire stake in the company over the past few months for a reasonable gain. Instead, we just sat there, waiting to be reamed again.

Then Citigroup decided that it simply had to pay the TARP money back (understandable). Of course, Citigroup didn't have the money to do this. So it had to raise the money by selling $17 billion of new common stock at a huge discount to the trading price ($3.15) and diluting the heck out of the US taxpayer again. We now own only 26% of Citigroup, down from 34%. This value destruction is permanent.

As was the case with Bank of America and the rest of our bailouts, the fault for this one cannot be laid merely at the feet of Citigroup. Citigroup is behaving sensibly under the circumstances. The fault can--and should--be laid at the feet of the man who likely has done more for Wall Street at taxpayer expense than any man in history: Tim Geithner.

Will we get our money back? Possibly. If Citigroup stock recovers, and we sell our stock this time, we'll do fine. But we could still lose all of it. And, as with Bank of America, et al, by allowing the bank to redeem the TARP before implementing any new reforms or controls, we've given up whatever leverage we had left.

Citigroup Does The Impossible: It Screws US Taxpayers AGAIN
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[Aditya Chitral]

This might be a naive question. But if the government owns 34% of the stock do they not take part in the decision like "offering new common stock at $3.15"

 

[bigbadwolf]

Tim Geithner is the scum of the earth. Well, maybe I shouldn't be so harsh. He's a bum boy of the financial heavy-hitters. All these things are being done behind closed doors and none of it hits the mass media.

 

[Uncle Max]

This is not to mention that US government guarantees against losses on $306 billions of toxic securities on Citigroup's balance sheet. For free...

---------- Post added at 03:59 PM ---------- Previous post was at 03:19 PM ----------

Here is another one:

US Quietly Concedes Billions in Tax Benefits to CitiGroup
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December 17th, 2009

In a move that quietly flew under the radar, The Washington Post reported today that the US government granted Citigroup (NYSE:C) billions in tax exemptions as part of a deal between the company to repay TARP bailout money. The concession is designed to help the company survive the current economic crisis despite the gigantic taxpayer funded bailout the company has already received. These tax breaks are yet another massive economic benefit the company has received over the past year in an attempt by the US Treasury to stabilize the banking giant.

Late last week the Internal Revenue Service (IRS) granted Citigroup an exemption to the loss carry forward rules that will allow the company to take advantage of billions of dollars of tax breaks that would otherwise not be available to them. The Obama administration has long stated that taxpayers will make money on the sale of Citigroup shares granted under terms of the bailout, but with these new tax rules the likelihood of the US taxpayer seeing a a huge net loss from this arrangement is virtually assured.

The benefit Citigroup is to receive is in the form of a temporary exemption in the loss carry forward/carry back rule. Current IRS rules allow companies to offset taxable income during good years with losses sustained during unprofitable years. The rule was enacted to prevent companies with positive net income from snatching up companies with perennial losses in order to minimize or negate their tax burdens. Under normal IRS rules the ownership obtained by the US government would have constituted a change in ownership and disallowed some of the losses to be carried forward, but the the special exemption granted to Citigroup will allow it to offset future gains with the huge losses it has suffered recently.

As of the third quarter, 2009, Citigroup has estimated its total loss carry forward at about $38 billion, meaning that it will be able to offset $38 billion in future earnings from being taxable. Though experts differ on the precise amount and timing of this tax benefit, it is widely understood to be several billion dollars, at a time when tax revenues are down and government coffers could use any additional income.

To many this move is just another form of government corporate handout to a company deemed too big to fail. Government watchdogs and industry insiders have cited that the urgency with which Citigroup, and now Wells Fargo, have rushed to pay back their government TARP bailout money has less to do with their desire to make right with the US taxpayers, and much more to do with being able to issue huge bonuses and operate with reckless disregard for the future, knowing that they can always be bailed out yet again.

US Quietly Concedes Billions in Tax Benefits to CitiGroup
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