March 30, 2010

Government Getting 20% Profit off Citibank Bailout Funds

The AP ran a story recently about how the Treasury says it will begin selling Citi shares.   The article points out that the government is making a $7.5B profit off the shares.   But thats not the whole story.

In late 2008 the government put $45B total into Citibank.   We find details of Citi's bailout from the Eye On the Bailout website that I mentioned previously.   First the government has already received $2.8B in revenue from Citi on their bailout.   That money came in the form of dividends.   The bailout money wasn't a 0% loan or a no strings attached handout as many people seem to think.    The banks that got bailout money were required to make interest / dividend payments on the funds.   Citi has paid back the $20B loan that it received.   The government then converted its $25B in equity into 7.7B shares or a price of $3.25 a share.   As I write this Citi is trading at $4.18.   Thats a paper gain of $7B on the stock appreciation.   

The government gave $45B to Citi.
Citi paid $2.8B in dividends
Citi repaid $20B in loan funds
The Government converted the other $25B in funds into 7.7B shares of Citi.

So overall the government put in $45B and then got $2.8B + $20B and $32B in Citi stock back. The total current value returned to the government is $54.8B.   That is a $9.8B profit in about18 months.    The government is getting back 20% more than it put into Citi.    Over the 1.5 year period this equates to roughly 14% annual return on the money.    20% return isn't bad at all.

Note that this all depends on the market value of Citi stock.   If Citi goes up the government will make more, but if their stock goes down the the government stands to lose some of its profits. 

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