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Citi to Repay TARP

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Citigroup Inc. announced that it would repay government capital invested under the Troubled Asset Relief Program and issue stock in lieu of cash for nearly $2 billion in employee compensation.

Citi said today that it reached an agreement with the government and its regulators to repay $20 billion that the U.S. Department of the Treasury holds in TARP trust preferred securities. The deal calls for the termination of a loss-sharing agreement with the government.

The repayment — which will result in an $8 billion pre-tax loss — will be financed with the issuance of $17 billion in common stock and $3.5 billion in tangible equity units. The move is expected to cut annual credit costs by $1.7 billion.

The Treasury said it will sell up to $5 billion of the common stock it holds in a concurrent secondary offering tied to Citi’s offering. Then, following a 45-day lock-up period, the Treasury will sell the remainder of its shares over the next six to 12 months.

The New York-based institution also announced that it will issue $1.7 billion in common stock equivalents to employees in January 2010. The compensation is being made in lieu of cash they would have received otherwise.

Assuming shareholder approval, the common stock equivalents will be replaced by common stock on April 1, 2010.

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