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From Bloomberg, Citigroup Stock Sale Discount Prompts Treasury to Delay Disposal of Stake :

Dec. 17 (Bloomberg) -- Citigroup Inc., the last of the four largest U.S. banks to seek funds to exit a taxpayer bailout, raised $17 billion by selling stock for a price so low that the U.S. delayed plans to shrink its one-third stake in the lender.

Citigroup sold 5.4 billion shares at $3.15 apiece, less than the $3.25 the government paid when it acquired its stake in September. The New York-based bank said the Treasury won’t sell any of its shares for at least 90 days.

Investors demanded a bigger discount from Citigroup than Bank of America Corp. or Wells Fargo & Co., which together raised more than $31 billion this month to exit the Troubled Asset Relief Program. Wells Fargo, which trumped Citigroup’s bid to buy Wachovia Corp. last year, leapfrogged its rival by completing a $12.25 billion share sale Dec. 15. JPMorgan Chase & Co. repaid $25 billion in June.

“The market cast its vote and they’re low down on the ballot,” said Douglas Ciocca, a managing director at Renaissance Financial Corp. in Leawood, Kansas. “Citigroup needs to show steps to reinstall the quality of the brand.”

With the sale, Citigroup’s common shares outstanding increased to 28.3 billion. That’s up from 22.9 billion as of Sept. 30 and 5 billion at the end of 2007.

“More shares outstanding means less value per share,” said Edward Najarian, an analyst at International Strategy and Investment Group in New York, who has a “hold” rating on the shares. “The whole structure of their deal to pay back TARP wasn’t very good for common shareholders and that is being reflected in the pricing.”

I think one of the most important points are being missed. Most of these banks swore that they didn't need TARP. Despite this, in order to return it, they must go back out to the capital markets. Why do you have to hit the market to return a loan that you said you didn't need, unless you needed it? This obvious lie has went unchallenged.

It gets worse. Citi is diluting the hell out of it shareholders, as well as all of the other TARP banks that are selling shares. Some may even be taking on debt. They are doing this primarily to gain the freedom to declare bonuses at higher rates despite uncertain credit condition surrounding the toxic assets that caused the problem in the first place. Why in the world would any lender or shareholder agree to dilution and/or higher debt service "primarily" to pay higher bonuses to employees in the highest compensated (as a percent of net revenue) industry in the world???

Imagine if you ran this business, you have rocky times during a recession with revenues in nearly all aspects of your business down save the blatant risk taking of trading, and you go to your bank and say I need a big loan so I can pay myself a $20 million bonus increase.
Do you think Citibank would give you this loan? They expect it from their shareholders. The same goes for Goldman, JPM, BAC, etc.

Also from Bloomberg: Weak Banks Should Face Curbs on Bonuses, Dividends, Basel Regulator Says

Dec. 17 (Bloomberg) -- Global regulators urged national authorities to limit bonus and dividend payments by banks with weakened capital safety nets as part of proposals to reduce risks to the financial system.

Banks should increase the quality of the capital they hold to cope with losses, the Basel Committee on Banking Supervision said in a report on bank capital and liquidity published today. Banks with depleted capital buffers shouldn’t use predictions of recovery to justify generous dividends to investors and employees, the committee said.

Global regulators have been wrestling with plans to increase supervision of banks following the worst economic crisis since World War II. The Group of 20 Nations agreed in April that banks should be required to hold more and better quality capital to reduce risks to the financial system.

“It’s not acceptable for banks which have depleted their capital buffers to try and use the distribution of capital as a way to signal their financial strength,” the committee’s statement said. “The proposed framework will reduce the discretion of banks which have depleted their capital buffers to further reduce them through generous distributions of earnings.”

It's amazing that this even needs to be said.