Citigroup strikes deal to repay TARP

Bank says it will return $20 billion in bailout money through combination of stock and debt offerings.

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By David Ellis, CNNMoney.com staff writer

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Citigroup staffers will no longer be subject to government pay restrictions as a result of Monday's announcement.
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NEW YORK (CNNMoney.com) -- Citigroup said Monday it has struck a deal with the government to return $20 billion in bailout money to taxpayers.

The New York City-based lender said it would raise the money through a combination of stock and debt, the bulk of which would come from a $17 billion common stock offering.

The announcement by Citigroup comes as top bank CEOs rendezvous in Washington with President Obama to discuss a variety of issues, including lending and regulatory reform efforts for the financial industry.

Citigroup became one of the biggest recipients of bailout money last year after the government injected $45 billion into the company to help stabilize the embattled lender.

Concerned about the company's underlying health and ability to endure future loan losses, the government converted $25 billion of its preferred-stock stake in the company into common stock over the summer. That effectively gave U.S. taxpayers a 34% stake in one of the world's largest financial institutions.

Citigroup said Monday that the government would get rid of those shares, starting with the sale of $5 billion worth of stock. The remaining shares would be sold "in an orderly fashion" over the next 6 to 12 months.

Citigroup (C, Fortune 500) shares tumbled 5% in morning trading Monday.

The company also said it was terminating the loss-sharing agreement it had struck with regulators in November in which the government agreed to backstop some losses against some $250 billion in troubled assets.

Citigroup CEO Vikram Pandit said his firm owed American taxpayers "a debt of gratitude" for propping up the firm earlier this year, adding that it would continue to help the nation's economy get back on track by extending loans and offering assistance to homeowners in need.

"By any measure of financial strength, Citi is among the strongest banks in the industry, and we are in a position to support the economic recovery," Pandit said in a statement.

As a result of Monday's announcement, Citigroup becomes the latest bank to return bailout money to taxpayers.

Lenders have been scrambling recently to pay back money received under the Troubled Asset Relief Program, or TARP.

Last week, Bank of America (BAC, Fortune 500) returned the $45 billion it received from the government, bringing the total amount of money recouped from the Troubled Asset Relief Program, or TARP, to $116 billion. Roughly $205 billion still remains invested in the industry overall.

Much of the repayment has been driven by fears about ongoing government restrictions, including caps on pay packages for executives at the nation's largest bailout firms.

On Friday, White House "pay czar" Kenneth Feinberg capped base salaries for 75 Citigroup executives at $500,000 for the remaining three weeks of 2009. Those changes were expected to serve as the model for their pay next year as well.

But, by paying back the bailout, Citigroup will no longer be required to submit pay packages for its executives to the government for approval.

Citigroup's announcement, while encouraging for taxpayers, is expected to push the company even deeper into the red when it delivers its fourth-quarter results on Jan. 19. Analysts are currently expecting the company to report a loss of $1.1 billion, according to Thomson Reuters. To top of page

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