Facing the government’s bailout watchdogs for the first time, Citigroup Inc. Chief Executive Vikram Pandit publicly thanked taxpayers Thursday for the $45 billion that helped save the company during the financial crisis and said he was taking steps to ensure future handouts would not be needed.
“This is a different company,” Pandit told the Congressional Oversight Panel, which monitors the $700-billion Troubled Asset Relief Program. He said he did not anticipate Citigroup would need any additional bailout money, a point echoed by Herbert M. Allison Jr., the assistant Treasury secretary who oversees TARP.
But the two faced sharp questioning as the panel delved into one of the largest bank bailouts.
Asked by the panel’s chair, Elizabeth Warren, why the company shouldn’t be broken up so future problems wouldn’t threaten the economy, Pandit said: “We are selling 40% of the company. We are breaking it up.”
Citi is a much smaller and healthier institution and takes much less risk with its money, he said. In December, it repaid $20 billion of its bailout money. The government also has removed $102 billion in guarantees it extended in 2008 for a large portion of Citi’s assets.
The remaining $25 billion in bailout money owed by Citi was converted into a 27% government ownership stake in the company, “and we look forward to helping them make money on that investment,” Pandit said.
“Citi owes a large debt of gratitude to the American taxpayers,” he said.
But Warren and other panel members pressed Pandit and Allison about why Citigroup needed more aid than most banks in the financial crisis, why it had reduced its overall lending, and how much the company benefits from easier credit terms because of the widespread belief the government would bail it out again.
“What is Citi paying the taxpayers for that guarantee?” Warren asked Allison, citing a Standard & Poors report that Citi’s credit rating was higher because investors trust the government to stand behind its debt.
Allison said there is no too-big-to-fail guarantee, and noted that the Obama administration’s proposed overhaul of financial regulations would eliminate the need for future bailouts by giving the government power to seize and dismantle large institutions on the brink of failure.
Pandit has backed that new “resolution authority,” as have other large financial institutions. Pandit also has supported other parts of the administration’s regulatory overhaul, including a ban on proprietary trading, known as the Volcker rule.
“I don’t think banks should be using capital to speculate,” Pandit said. Citigroup had significantly cut back on its proprietary trading, he said, but added that he wanted to see the wording of the administration’s proposal, submitted to Congress this week, before endorsing it.
Pandit’s positions led panel member Paul Atkins, a former member of the Securities and Exchange Commission, to question whether Citigroup was favoring government interests over other shareholders.
“It’s difficult to avoid the impression that one of the motivations is for the company to curry favor with the hand that feeds it,” he said.
Pandit said the government’s ownership stake put him in a no-win situation.
“This is a tough position for me because if I say what I believe and it happens to be in line with what somebody else believes in the administration, it looks like, hey, you know, I’m doing this because the Treasury’s a 27% shareholder,” Pandit said.
Pandit said that besides repaying some of the TARP money, Citigroup has paid $3 billion in interest and dividends on the TARP money and $5.3 billion in premiums on the asset guarantee.
And the government’s stock holding in Citi could pad the returns. Treasury officials said Thursday that the government netted $1.54 billion in the sale of stock warrants it received from Bank of America as part of its $45-billion bailout.
“We don’t want to be a shareholder in that company,” he said, speaking of Citi. The U.S. will sell the company’s warrants “in an orderly manner” over the next year, he said, stressing that government officials were not involved in daily management of Citigroup.
Panel member Damon Silvers, a policy executive at the AFL-CIO, noted that Citigroup’s commercial and corporate lending had dropped significantly since the end of 2007, and questioned whether the company now was focused on its core banking business.
Pandit said the company was lending under tighter standards since the crisis.
“The regulators want us to make prudent loans,” he said. “We are doing that.”