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Marketplace Scratch Pad

Citigroup vs Wells Fargo

Scott Jagow Dec 11, 2009

These two banks are taking very different approaches to paying back TARP. Citi is desperate to get out. Wells is strolling along at its own sweet pace. Why?

Here’s one theory on Wells from The Street, emphasis mine:

Recently, the Wells’ top representative insisted that his firm’s failure to pay back the TARP money isn’t an issue of its weakness. Rather, the bank’s reimbursement delay is due to its moral obligation to its shareholders. CEO John Stumpf explained that the company wants to repay the taxpayers’ money. However, rather than exiting as quickly as possible, Wells is more focused on doing so in “a shareholder-friendly manner.” When Wells frees itself from TARP, it wants to make sure that not only the government and taxpayers are paid back, but that the firm’s shareholders have something to show for their troubles.

While it sounds high-minded of Wells to look out for its shareholders, let’s not forget those shareholders now include the taxpayers. It should also be noted that a major Wells Fargo investor is Warren Buffet. Few companies want to trifle with him.

Citigroup, on the other hand, has been testing the waters about a stock sale. Citi needs to raise $20 billion to pay back the government, but a stock sale would dilute shares for current shareholders:

Citigroup investors are balking at the thought of a big $20Billion raise, therefore Citi is trying to raise less and use internal capital to repay its TARP obligations.

The issue now will be to see if the US Treasury will let them use internal capital for TARP repayment, due to the capital requirements that Citi needs to maintain.

Citi desperately wants to get out from under the government’s pay limits to stay competitive with the banks who’ve already exited TARP.

Wells Fargo, on the other hand, doesn’t have a slew of high-paid traders and capital markets people. So it doesn’t feel that same pressure.

Some observers argue that neither Wells nor Citi is in any sort of condition to be off the government dole. But it’s hard to tell because the banks have been allowed to revalue so many of the assets on their books.

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