03 February, 2009

Citigroup unveils TARP plans, public gets some transparency

Leading the pack of news stories in the category of "Things that should have been public months ago" is today's gem about Citigroup (C) and their official plans for using government funds as part of the TARP bailout. Finally the company is unveiling how it has structured the use of funds it received as part of the Federal Government's Troubled Asset Relief Program - TARP.

In a report out today, Citi outlines how it earmarked for use the $45Billion it received in aid. Taxpayers, and in turn, the press have become more adamant in recent weeks about getting more transparency from the companies receiving TARP funds. President Barack Obama has released statements and given speeches recently on the same subject matter, and has in fact made transparency, regulation and executive pay limitations cornerstones of the next step of TARP and in the ongoing legislative stimulus package that is reportedly approaching $880Billion.

It is certainly high time for this kind of disclosure, with the latest stimulus package the United States government has essentially printed close to $2Trillion in economic aid, as taxpayers have been left scratching their heads. The public has demanded these programs become more transparent and informative, and with media and political pressure now being placed on the companies that receive funds, Citigroup appears the first to play ball.

With Citi stock hovering around the $3.50 range, the company really has no other choice but to do everything in its power to regain some Investor confidence. The selling of assets that it began late last year and early this year, including the brokerage deal with Morgan Stanley (MS), is only the beginning of the end of Citi as a stand-alone banking conglomerate. There are many legitimate fears in the marketplace that Citi's common shareholders will be left holding the bag as assets are sold to cover losses and Government aid comes in the form of more control.

For Citi Investors, the question to ask is whether, for the sake of the United States and the country's new mantra of Hope and Change, can one of the big American financial institutions afford to be seen as dissolving? Citigroup stock has seen support around the $3 range and has been caught in the bullish and bearish short-term trends of the market over the last 3 months. Initial sentiment to the report was positive boosting Citi by nearly 6% at the open to $3.80, however this waned quickly leaving Citi stock down by nearly 2% in early trade.

With this TARP report, Citi hopes to instill confidence to the mass media, that money being given isn't only used to cover bad investment bets. A bank of its size and stature is one of the few institutions that can get the media writing about new loans and new business instead of plummeting housing starts and production capacity. For the sake of a fragile American economy, that should be seen as a positive. According to the plan, Citi has approved $36.5Billion for loans and other related commitments to other businesses. Citi also made a big push into the secondary mortgage market, by taking $27.5Billion of its approved use dollars and buying up mortgages and other troubles mortgage related assets.

The important part here is that Citi is making a valiant effort to boost lending in America, and if similar reports come out from other institutions the public and the press will start to get what they were clamoring for, TARP transparency.

Disclosure: Author owns C

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