Citigroup turns emergency loans into profit for taxpayers
After being lent billions in emergency loans, Citigroup may be the model that firms receiving bailouts should follow. Citigroup will end up turning a profit for taxpayers when the Treasury sells its shares. The company stands to have produced a net gain of $12 billion or more for the government.
Emergency loans to Citigroup pay off
More than two years ago, Citigroup asked the U.S. Treasury for some hefty emergency loans, saying it direly needed some instant cash or the firm would perish. The bailouts, and the Troubled Asset Relief Program or TARP, have been the subject of a lot of controversy. However, a recent announcement ought to please even the most ardent fiscal conservative. The Treasury will be selling the rest of its shares in Citigroup; it holds more than 2 billion common shares in the company, according to USA Today. The shares were given to the Treasury as a condition of receiving secured loans. If everything goes according to plan, taxpayers stand to profit about $12 billion from the loans to Citigroup.
Citigroup would net Treasury a 27 percent profit
The government held about 7.7 billion shares in Citigroup as a result of the bailout. The Treasury had sold 5.3 billion of those shares as of Monday. The remaining 2.4 billion shares are worth about $4.35 a piece as of Monday, and the sale of those remaining shares should net a quick payday of about $31.8 billion, plus another $2.9 billion in interest and dividends. Combined with the payments Citigroup has already made, more than $20 billion, the Treasury should take in an estimated $57 billion for the $45 billion in loan cash and guarantees to Citigroup. That’s a simple profit of about 26.7 percent.
If the sale of Citigroup shares by the Treasury does result in a profit of that much, or even close, that would make Citigroup a model bailout company. Ideally, the shares of other bailed out firms, such as GM, will have a similar outcome.