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OBAMANATION CHRONICLES Citigroup Bailout for $38.6 BillionA bailout was necessary -- but this bailout is an outrage: a lousy deal for the taxpayers, no accountability for management, and just to make things perfect, quite possibly inadequate, so that Citi will be back for more. "If Citigroup had not been bailed out, then the whole financial system could collapse," said Princeton economics professor Paul Krugman on CBS' The Early Show. But is the government bailout of Citigroup well-structured, and are taxpayers getting a fair deal here?Krugman, author of "The Return of Depression Economics and the Crisis of 2008" (Norton), says on first read, no. "Most of the people who have looked at it, the small hours of this morning, have said this is a lot of taxpayer risk in return for not much," Krugman told co-anchor Maggie Rodriguez. "It looks like a very sweet deal for Citigroup management, very sweet deal for Citigroup shareholders, to the extent they have anything left - not very good for the taxpayer. This was not good." With other bailouts seemingly having done nothing to boost consumer confidence, Rodriguez asked, why do it if it is not well-structured? "Well, you know, things could be worse, you know? That's been the moral of this crisis: things can always be worse,' Krugman said, "and they have been getting worse. "Things could be much worse than they are. It's what hasn't happened, not what has, is the justification. We had to do this, but we should have done it better." (Source: Huffington Post.) OPINION: Citigroup deftly showed other big companies how to play bailout bingo earlier this week. They got theirs in record time even though most of the nation didn't know they were in trouble until a few minutes before the check was written. By the way, lost in the back pages of the Citi story is an interesting sidebar about former Citi director and senior advisor Robert Rubin.(SITE NOTE: Just days after procuring a $326 billion bailout and $20 billion capital injection from the federal government, just a week after divulging its intention to lay off 52,000 workers, Citigroup is publicly confirming and remaining steadfast in its plan to pay $400 million for naming rights to the New York Mets' new baseball stadium as "Citi Field". If a corporation is in that much trouble, shouldn't the frills go before the bailout? (Source: Reuters.) Citigroup Should Be Held Accountable, Obama Aide Podesta Says (Nov 2008) The U.S. government should demand accountability and changes at Citigroup Inc., as well as from automakers, in exchange for any financial assistance, a top transition official for President-elect Barack Obama said. "It seems to me that the government ought to demand accountability," including on executive compensation, John Podesta said in an interview on Bloomberg Television's "Political Capital with Al Hunt," scheduled to air today. "If we're going to have one rule, we ought to apply it to all of the financial institutions that we're taking a look at," Podesta said. "That's my personal opinion." In the case of Detroit, lawmakers are demanding from auto industry executives a concrete plan on going forward while others are asking for management changes. The government hasn't made those demands of Citigroup. Podesta's comments about seeking reforms from Citigroup echoed those made this week by Senate Banking Committee Chairman Christopher Dodd, who said Washington should have struck a better deal in its rescue of Citigroup, including management changes and a greater return for taxpayers. The Federal Reserve, Treasury Department and the Federal Deposit Insurance Corp. on Nov. 23 announced a plan to insure Citigroup against losses on $306 billion of troubled assets and inject $20 billion of capital after the company's shares plunged more than 60 percent in a week. As part of the plan, Citigroup is required to submit an executive-compensation plan for government approval. (Source: Bloomberg.) January 2009UPDATE: Jan 2009: Citigroup buys $50 million Corporate jet with Bailout funds After accepting billions of taxpayer dollars back in the latter months of last year, Citibank refused to abandon plans to spend $400 million to acquire naming rights to the New York Mets' new ballpark, and just recently reportedly paid $50 million for a new corporate jet. Is this the kind of behavior, the same behavior seen by executives at Merrill Lynch (who spent millions renovating office space) and at AIG (who went on expensive corporate retreats) which you had in mind when voting against this disastrous piece of legislation?February 2009UPDATE: Feb 2009: After receiving bailout, former CEOs still getting Perks Banks that took government rescue funds have been criticized by President Barack Obama, Congress and the public for lavish spending on pay and perks for top executives. Lenders continue to dole out benefits, including the longstanding practice of free offices and secretarial help, to former chiefs. Some of the recipients are blamed for abetting the financial crisis. (Source: Bloomberg.)`US Gov`t Considers Buying Stakes in Citigroup` (Feb 2009) The U.S. government is considering taking a stake of 25-40 percent in Citigroup, the Wall Street Journal said on 23 Feb. A Citibank source said the discussions could fall apart but that Washington could own as much as 40 percent of Citigroup's common stock. Bank executives said they hope the stake will be closer to 25 percent. The daily said the government is negotiating with the bank to convert Citigroup's preferred shares bought by the government twice since October last year into common stocks. In other words, Washington, which injected 45 billion U.S. dollars (67 trillion won) equivalent to 7.8 percent of the group's preferred shares, wants to convert the shares into common stock. Washington would hold 25-40 percent of Citigroup's common stock depending on stock price. Details of the negotiations including state intervention have yet to be released. As rumors last week said the government will nationalize Citigroup and Bank of America, their share prices collapsed. The Wall Street Journal also said the White House has dismissed speculation that the government is preparing to nationalize several large U.S. banks. Bank of America also said it had not negotiated with the government. The New York Times also said on 23 Feb that the government and Citigroup will negotiate over bigger ownership, adding the government will take a hard look at the financial condition of the 20 largest U.S. banks. Under the plan, the U.S. government will use computer-run "what-if" situations to estimate what would happen to each bank under Depression-like conditions. The New York Times said Washington is highly likely to conclude that large U.S. banks need additional public funds and accordingly own bigger stakes in them. (Source: Donga Ilbo.) Government Makes 3rd Rescue Attempt For Citigroup (Mar 2009) The U.S. government will exchange up to $25 billion in emergency bailout money it provided Citigroup Inc. for as much as a 36 percent equity stake in the struggling bank, greatly increasing the risks to taxpayers as voter unhappiness about the broader bailout program rises. http://cbs2.com/national/citigroup.government.deal.2.945596.html The $25 Billion was originally secured by "Preferred Shares" of Citi Group Stock. These "Preferred Shares" paid the US Taxpayers 8% interest and were "first in line" to be repaid should Citi Group eventually end up in receivership. The "Preferred" shares provided the best security possible for American Taxpayers. "Taxpayers will also lose roughly $2 billion in dividends, because the preferred shares they are giving up paid 8% dividends. Citi suspended its common stock dividend as part of the agreement." (CNN Money.) Common shares absorb losses before preferred shares do, which means taxpayers would be on the hook if banks keep writing down billions of dollars' worth of rotten assets, such as dodgy mortgages, as many analysts expect they will." (CBS2.) The Obama Administration decided to employ an "accounting trick" on Friday in the hopes of improving the "look" of the Citi Bank balance sheet without making any meaningful change. Once again we get get style over substance. No additional funds were provided, the $25 Billion was simply moved from the "Preferred" to the "Common Stock" column on the balance sheet. "The swap of $25 billion of preferred shares into common stock will expose the government to the same risks facing other holders of the bank's common stock". (CBS2.) In exchange for the "security" Taxpayers enjoyed from owning "Preferred" shares, the Government obtained working control of Citi Group by obtaining a 40% stake in the company's Common or voting stock. These Common Shares will be held in a "trust" in the Treasury Department where between 1 and 3 individuals will be politically appointed to, in essense, make secret decisions behind closed doors that will direct what activities the CEO and Board of Directors of Citi Group take. That is right, they will direct what types of loans are made and to whom. Isn't that how we got in this mess in the first place? In making this move the Government agreed to pay $3.25 per share for the Common Stock it obtained. That is right, the Government agreed to pay $3.25 a share for stock that sold for $2.46 a share the night before. The Government agreed to pay a 33% "mark-up" on the true value of the stock as of the start of business on Firday morning, 02/27/09. I'm outraged, the Government "threw away" 33% of the taxpayers $25 Billion (or $8.25 Billion) with the blink or wink of an eye. " Citi will offer to exchange up to $27.5 billion of preferred stock at a conversion price of $3.25 per share. That's a 32 percent premium over Thursday's closing price of $2.46." (CBS2.) "The new deal Friday did not give the bank any additional taxpayer dollars. But the government is taking on a greater risk by assuming more volatile common shares. The market price is well below the $3.25 per-share conversion price the government is paying." (CNN Money.) What does this mean? The Government paid $25 Billion for stock worth $16 Billion at the start of the day Friday. What is a $9 Billion Dollar loss anyway? Its only taxpayer money! "The administration decided to restructure the bailout package for Citigroup again in the hopes that converting $25 billion of preferred shares into common stock would give investors more confidence that the bank has sufficient capital reserves to withstand mounting losses on its holdings of mortgages". (Yes, that is right, the "Sub-prime mortgage crisis" caused the "banking crisis" which in turn brought down the US and World economy). (CBS2.) "Investors appeared disappointed in the deal and expected dilution of their stake, sending shares plummeting 81 cents, or 32.9 percent, to $1.65 in midday trading". (CBS2.) Was that it? Stockholders were disappointment that the value of their stock was diluted or were shareholders concerned that the Government had taken over "voting control" of Citi and that policticians, exercising voting control through a "stock trust" will secretly direct all of the activities of the Citi Group from behind closed doors in Washington? Earlier this year (January 2009) Richard Parson's, an Economic Advisor to Obama, was named Chairman of the Board of Citi Group. (CBS News.) Obama's plan was for the "accounting trick" or "stock switch" to increase Citi's "tanigible common equity" while the Politicians took over voting control of Citi. To many, when a Government takes over voting control of a Bank and suspends Common Stock dividends of that Bank, that Government has Nationalized that bank. "For Citigroup, the conversion is important because it increases the bank's tangible common equity, making an improvement in the bank's troubled balance sheet." (CNN Money.) By the close of the business day on Friday (02/27/09) Citi Common Stock was trading for $1.50 per share, a drop of nearly 40% off the stock price of $2.46 at the start of business on Friday. (A 40% drop from the actual trading price at the start of the day $2.46 share, not the "artificially" high price the Government paid of $3.25/share). (CNBC.) Obama's "trick" to improve Citi's "tangible common equity" failed miserably - Citi's net "tangible common equity" droppped 40% on Friday. The US Taxpayers $25 Billion in "Preferred Stock" was worth $11.5 Billion in "Common Stock" at the end of the day. In addition the Taxpayers lost $2 Billion a year in Dividends that the "preferred stock" was paying. A $13.5 Billion Dollar loss in one day …. What the heck, it is only taxpayer money anyway ….. and now the Government can run Citi behind closed doors. I'm sure the Administration thinks this move would have been cheap at twice the price - heck its the taxpayers who are on the hook and the Administration can just ignore them. Am I really to believe that this group has even a remote chance to turn this economy around and cut these huge deficits? Why am I to believe that? I'm anxiously awaiting the specifics of the "bank stress test" and the details of the "homeowner mortgage bailout" plan. (Source: McAuley's World.) March 2009Citi Says "Keep Your Money;" DJIA Up 239 Points (Mar 2009) When the market is down 45% and seems to have no bottom, what's a good way to instill some investor confidence? How about showing faith in the free market by NOT giving Billion$$ to corporate concerns? Today that happened, quite by accident, and the market loved it. It sure wasn't because the government acted at all like responsible adults. Comrade Obama and his lapdogs Reid and Pelosi are more than happy to use taxpayer moneys to buy influence in corporate America. The problem is that corporate America knows these irresponsible thugs would be awful business partners, and they are becoming more and more wary of the "help" that the government is offering. So today Citi sent a message that they want no more of what Comrade Obama is offering... and the market enjoyed one of the best days since our November Revolution. Let's hope corporate America wakes up before it's too late. (Source: Evil ConservativeWASHINGTON (Reuters) - Citigroup Inc Chairman Richard Parsons said on Thursday that the bank does not need any more capital injections from the government and expressed confidence that Citi would remain in private hands. Asked in an interview with Reuters whether Citigroup needed additional government capital injections, Parsons said: "No, I think actually, particularly with the latest conversion... Citi is actually one of the better capitalized banks in the world." May 2009Prudential, Ameriprise turn down TARP (May 2009) Prudential Financial Inc. will join Ameriprise Financial as insurers rejecting help from the U.S. Troubled Asset Relief Program, industry sources say. The two are among six insurers approved for billions in aid from the Treasury Department, but have opted to turn down the assistance, citing improved private lending conditions and a better climate to sell stock to raise capital, The Wall Street Journal reported Saturday.The newspaper quoted unnamed sources familiar with the matter saying Prudential would follow Ameriprise's lead and turn down TARP funds after the insurance industry waited months for the Treasury Department to decide whether they'd be eligible for the funds, which were approved last year to help bail out banks overwhelmed by the financial crisis. You don't take TARP money unless there's some weaknesses. It's not the happiest money in the world, Andrew Kligerman, an insurance industry analyst at UBS, told the Journal. Principal, along with fellow insurance industry giant Allstate, recently raised $1 billion, with Principal doing so from a common-stock offering and Allstate through a debt offering. Those two insurers were non-committal on whether they would accept TARP funds, the Journal noted. (Source: Red Orbit.) July 2009U.S. becomes Citigroup's biggest shareholder (Jul 2009) One hundred ninety-seven years, one month and 14 days after its founding, Citigroup Inc has given a roughly 34 percent stake to U.S. taxpayers. While a few technical details still remain, the bank has completed a months-long effort to convert preferred shares held by the U.S. government into common stock. Citigroup on Thursday completed two exchange offers to bolster the capital position of the nation's third-biggest bank, widely considered the most troubled large U.S. lender.Public investors, private investors and the government swapped close to $58 billion of preferred securities into common stock of the New York-based bank. Citigroup has said the swaps would leave it with more than 21 billion shares, up from 5.51 billion at the end of June. The $25 billion swapped by the government is part of its $45 billion infusion from the federal bank bailout plan, the Troubled Asset Relief Program. Another $20 billion of that sum will remain in the form of preferred shares, throwing off an 8 percent annual dividend. The higher government stake could add to pressure on Chief Executive Vikram Pandit to improve performance and shed unwanted or toxic assets. Citigroup has also overhauled upper management and added seven new directors this year. Earlier Thursday, Citigroup said it will sell a 64 percent stake in Japan's Nikko Asset Management Co to Sumitomo Trust & Banking Co for 75.6 billion yen ($790 million). Speaking in Kuala Lumpur, Malaysia, Pandit said the bank is moving "extremely fast" on asset sales. Citigroup agreed to the exchange offers in February as part of a government bailout, following $37.5 billion of losses over the previous five quarters.The swaps were originally expected to total $52.5 billion. They grew to $58 billion after regulators ordered Citigroup to build a buffer following a "stress test" of its finances. Citigroup said the swaps will make it one of the world's best-capitalized banks, with about $100 billion of tangible common equity. Other large Citigroup investors include several sovereign wealth funds, and Saudi Prince Alwaleed bin Talal. (SITE NOTE: Isn't it interesting that Saudi Prince may have used his wealth to benefit Obama's entry into Harvard -- though not substantiated.) The bank's roots date to when City Bank of New York opened on June 16, 1812, with $2 million of authorized capital. Citigroup itself was created on October 8, 1998 through the merger of Travelers Group Inc and Citicorp. Shares of Citigroup fell 4 cents to $3.18 in afternoon trading on the New York Stock Exchange.($1 = 95.7 Japanese yen) (Source: Reuters.) August 2009Major Democratic Fund Raiser Charged with Fraud of Citigroup (Aug 2009) A major fund-raiser for Barack Obama, Hillary Clinton and other Democrats was charged by federal prosecutors in New York in connection with a scheme to defraud Citigroup Inc (C.N). Hassan Nemazee, 59, was accused of one count of bank fraud for allegedly seeking a fraudulent $74 million loan from Citigroup's banking unit, U.S. Attorney Preet Bharara and the Federal Bureau of Investigation said on Tuesday.Nemazee will be released Wednesday on $25 million bond and be confined to his apartment on Park Avenue in Manhattan, with no access to computers. The bond is secured by the apartment and another home in Katonah, New York. Marc Mukasey, a former federal prosecutor who represents Nemazee, at a hearing called the bail "draconian," saying "it's the most onerous bail package I've ever been a part of." His client did not enter a plea. Nemazee faces up to 30 years in prison and a fine that could reach $1 million or more. He is chairman and chief executive of Nemazee Capital Corp, a private equity firm. The U.S. attorney's office declined to elaborate on the charges. Another hearing was set for Sept. 24. Prosecutors said Nemazee tried to get Citigroup's banking unit to lend up to $74 million based on fraudulent and forged documents suggesting that he had hundreds of millions of dollars of accounts available as collateral. They said Nemazee provided Citigroup with fake references so that when the bank would try to confirm details about his accounts, it would actually be contacting him. The scheme lasted from December 2006 to this month, prosecutors said. Federal agents stopped him on Sunday at Newark Liberty International Airport as he prepared to board a flight to Rome, and he repaid a loan of more than $74 million to Citigroup the following day, the government said. Nemazee was a national finance chair of Hillary Clinton's 2008 presidential campaign, and a supporter of Sen. John Kerry's run for the White House in 2004. He typically donates more than $100,000 annually to Democratic political candidates, including Senate Majority Leader Harry Reid and Sen. Charles Schumer, and sits on the board of the Iranian American Political Action Committee. Bill Clinton, when he was president, had nominated Nemazee to be U.S. ambassador to Argentina. Hillary Clinton is U.S. Secretary of State. Nemazee is listed as having been among the top "bundlers" of contributions to Obama's presidential campaign, according to OpenSecrets.org, a website maintained by a nonpartisan research group, the Center for Responsive Politics. According to Nemazee Capital's website, the firm was founded in 1987 and specializes in financial services. It said its acquisitions have included Carret Asset Management, a privately held firm founded by legendary investor Philip Carret, and part of what is now Brean Murray Carret & Co, a small investment bank. Brean did not immediately return a request for a comment. Citigroup spokeswoman Shannon Bell said the bank is working with authorities on the matter. The case is: U.S. v. Nemazee, U.S. District Court, Southern District of New York (Manhattan), No. 09-mj-1927. (Source: Reuters) December 2009Geithner Loses BILLIONS in Deal with Citigroup -- While Talking of Making a Profit U.S. gave up billions in tax money in deal for Citigroup's bailout repayment (Dec 2009) The federal government quietly agreed to forgo billions of dollars in potential tax payments from Citigroup as part of the deal announced this week to wean the company from the massive taxpayer bailout that helped it survive the financial crisis. The Internal Revenue Service on Friday issued an exception to long-standing tax rules for the benefit of Citigroup and a few other companies partially owned by the government. As a result, Citigroup will be allowed to retain billions of dollars worth of tax breaks that otherwise would decline in value when the government sells its stake to private investors. (SITE NOTE: Isn't this neat -- when Geithner is publicizing how the Treasury will make a PROFIT from the repayment of the banking TARP loans? Geithner is a liar -- and like Obama -- is simply trying to pull the wool over the eyes of the public.)While the Obama administration has said taxpayers are likely to profit from the sale of the Citigroup shares, accounting experts said the lost tax revenue could easily outstrip those profits. The IRS, an arm of the Treasury Department, has changed a number of rules during the financial crisis to reduce the tax burden on financial firms. The rule changed Friday also was altered last fall by the Bush administration to encourage mergers, letting Wells Fargo cut billions of dollars from its tax bill by buying the ailing Wachovia. "The government is consciously forfeiting future tax revenues. It's another form of assistance, maybe not as obvious as direct assistance but certainly another form," said Robert Willens, an expert on tax accounting who runs a firm of the same name. "I've been doing taxes for almost 40 years, and I've never seen anything like this, where the IRS and Treasury acted unilaterally on so many fronts." Treasury officials said the most recent change was part of a broader decision initially made last year to shelter companies that accepted federal aid under the Troubled Assets Relief Program from the normal consequences of such an investment. Officials also said the ruling benefited taxpayers because it made shares in Citigroup more valuable and asserted that without the ruling, Citigroup could not have repaid the government at this time. "This rule was designed to stop corporate raiders from using loss corporations to evade taxes, and was never intended to address the unprecedented situation where the government owned shares in banks," Treasury spokeswoman Nayyera Haq said. "And it was certainly not written to prevent the government from selling its shares for a profit." Congress, concerned that Treasury was rewriting tax laws, passed legislation earlier this year that reversed the ruling that benefited Wells Fargo and restricted the ability of the IRS to make further changes. A Democratic aide to the Senate Finance Committee, which oversees federal tax policy, said the Obama administration had the legal authority to issue the new exception, but Republican aides to the committee said they were reviewing the issue. A senior Republican staffer also questioned the government's rationale. "You're manipulating tax rules so that the market value of the stock is higher than it would be under current law," said the aide, speaking on the condition of anonymity. "It inflates the returns that they're showing from TARP and that looks good for them." The administration and some of the nation's largest banks have hastened to part company in recent weeks. Bank of America, followed by Citigroup and Wells Fargo, agreed to repay federal aid. While the healthiest banks escaped earlier this year, the new round of departures involves banks still facing serious financial problems. The banks say the strings attached to the bailout, including limits on executive compensation, have restricted their ability to compete and return to health. Executives also have chafed under the stigma of living on the federal dole. President Obama chided bankers at the White House on Monday for not trying hard enough to make small-business loans. The Obama administration also is eager to wind down a program that has become one of its largest political liabilities. Officials defend the program as necessary and effective, but the president has acknowledged that the bailout is "wildly unpopular" and officials have been at pains to say they do not enjoy helping banks. Federal regulators initially told Citigroup and other troubled banks that they would be required to hold on to the federal aid for some time as they return to health. But in recent months, the government switched to pushing the companies to repay the money as soon as possible. All nine firms that took federal money last October now have approved plans to pay it back. This urgency has come despite the lingering concerns of many financial experts about the companies' health. These analysts said they worry that the firms could face rising losses next year as high unemployment and economic weakness continue to drive great numbers of borrowers into default. "They are rolling the dice big time," said Christopher Whalen, a financial analyst with Institutional Risk Analytics. "My fear is that the banks will definitely have to raise a lot more capital next year. The question is from whom and on what terms." The Citigroup repayment deal required significant sacrifices by both sides, underscoring the mutual determination to get it done. Citigroup was required to replace its federal aid with an equal amount of money from private investors, more than any other bank. The government concluded that Citigroup needed the IRS ruling because a reduction in the value of its tax breaks would have eroded its capital, forcing the company to raise more money, officials said. Federal tax law lets companies reduce taxable income in a good year by the amount of losses in bad years. But the law limits the transfer of those benefits to new ownership as a way of preventing profitable companies from buying losers to avoid taxes. Under the law, the government's sale of its 34 percent stake in Citigroup, combined with the company's recent sales of stock to raise money, qualified as a change in ownership. The IRS notice issued Friday saves Citigroup from the consequences by stipulating that the government's share sale does not count toward the definition of an ownership change. The company, which pushed for the ruling, did not return calls for comment. At the end of the third quarter, Citigroup said that the value of its past losses was about $38 billion, allowing it to avoid taxes on its next $38 billion in profits. Under normal IRS rules, a change in control would sharply reduce the amount of profits that Citigroup could shelter from taxes in any given year, making it much more difficult for Citigroup to realize the entire benefit before the tax breaks expired. The precise value of the IRS ruling depends on Citigroup's future profitability and other factors, but two accounting experts said it was fair to estimate that Citigroup would save at least several billion dollars as a result. Treasury acknowledged that the tax break was significant, but a senior official said the benefit was unavoidable. Either the government changed the rules and parted ways with Citigroup or the company kept the government as a shareholder and kept the tax break anyway. "The choice is whether Treasury sells or doesn't sell," the official said. (Source; Washington Post.) Treasury delays its Citi sale (Dec 2009) Citigroup Inc. said it is selling a huge chunk of its stock at a steep discount to raise the cash it needs to repay bailout funds and free itself from government support. But the government backed out of selling any of its 34 percent Citi stake, apparently due to the tepid investor response and the weak price garnered by the $20.5 billion equity offering -- described by Citigroup as the largest in history. Citigroup said it is selling 5.4 million common shares at $3.15 apiece, an 8.7 percent discount to yesterday's close. The bank is also selling 35 million tangible equity units, which can be converted into common stock at a later date, for $100 each. Citigroup's shares dropped 25 cents, or more than 7 percent, to $3.20 in after-hours trading. Citigroup is selling the shares as part of its effort to repay $20 billion in federal bailout funds. The bank announced the offering on Monday, shortly before Wells Fargo & Co. announced plans to raise capital through a public stock offering to pay back its own government bailout loan. In total, Citigroup received $45 billion as part of the Troubled Asset Relief Program, or TARP, to help it manage through the credit crisis as it suffered under the weight of souring loans. Citigroup only had to pay back $20 billion because the remaining $25 billion was converted into a 34 percent ownership stake in the bank earlier this year. The government paid $3.25 a share for its stake, which means it would have lost 10 cents a share in the offering. (Source: NY Post.) February 2010 Obama drags his mess into the new year. TREASURY $2.33 BILLION LOSS...Tell me again the fairy tale of too big to fail CIT TARP Wipeout is Official (Feb 2010) The U.S. Treasury has officially lost its entire $2.33 billion TARP investment in CIT Group(CIT Quote), according to a company filing with the Securities and Exchange Commission after Monday's closing bell. The Treasury made the investment in CIT in December 2008, but CIT then ran into trouble after the Federal Deposit Insurance Corp. refused to guarantee its debt, as the FDIC did for larger lenders, including General Electric(GE Quote) and large banks like Citigroup(C Quote), Bank of America(BAC Quote) and Wells Fargo(WFC Quote). CIT ended up filing for bankruptcy protection on Nov. 1 but was able to reorganize and return to a public listing on Dec. 10. Contrary to what many assumed, the bankruptcy filing did not extinguish all hope for a taxpayer recovery. The Treasury and other preferred shareholders received complex securities called contingent value rights (CVRs) which could have been worth something if CIT Group's stock had reached the mid-50s ahead of Monday's session, according to the estimate of another investor who held CVRs. CIT Group is the largest loss on record under the TARP, though AIG (AIG Quote) General Motors, GMAC, Fannie Mae(FNM Quote), Freddie Mac(FRE Quote), Chrysler and Citigroup each owe the Treasury at least $10 billion each, according to ProPublica. Linus Wilson, a University of Louisiana professor who has kept a close critical watch on the bailout, just hopes the Treasury has learned its lesson on CIT, should the lender run into trouble again under its new boss, former NYSE Euronext(NYX Quote)and Merrill Lynch chief John Thain. "Taxpayers have already been burned once propping up CIT Group. Hopefully, they will not be forced to do that by misguided Treasury officials again. One thing we learned from the first Chapter 11 filing of CIT Group was that its bankruptcy was a non-event for the markets," Wilson wrote via email. A spokesperson for the Treasury declined comment for this article. CIT shares rose 14 cents to $30.75 in recent trades. Based on Monday's close at $30.61, the stock was up nearly 11% so far in 2010. (Source: The Street.)
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