Looks like Vikram Pandit is in for a busy week, as the Citigroup CEO nears finalisation of the deal to spin off Citi’s Smith Barney brokerage unit into a joint venture controlled by Morgan Stanley, even as ugly noises on Capitol Hill annd elsewhere grow ever-uglier about Citi’s deal on mortgage payments - and what promises Citi may have made in order to gain its handsome capital injection.
Meanwhile, as the Washington Post reports, other big US banks are complaining bitterly about Citi’s deal with regulators to support a plan to allow bankruptcy judges to modify the terms of troubled mortgages and help prevent foreclosures.
Citi gained a $25bn capital injection from the US government last October as part of the $700bn financial bailout - and in November, the US Treasury agreed to invest another $20bn in Citi preferred stock and help guarantee up to $306bn in risky assets.
Reuters reports Monday that Senator Carl Levin, head of a Senate subcommittee on investigations, said he plans to subpoena the Treasury Department to see the details of its agreement with Citi and determine what commitments the financial institution made in exchange for government aid.
Levin said he wanted to see whether the agreement included any commitments to help borrowers stay in their homes despite having trouble paying their mortgages. “It’s a simple request they so far have stiffed us,” Levin said Sunday before closed-door meetings with incoming Obama administration officials on the financial bailout and an economic stimulus package.
And in a remark that could spell trouble for disbursement of the remaining $350bn of US Tarp bailout money, Levin said: “They [Treasury] promised us repeatedly we’d get the document so I intend to issue a subpoena this week to get that”; and added he wanted to see it before determining whether to vote to release the second tranche of bailout money.
Meanwhile, president-elect Barack Obama’s aides have been in discussions with the White House over whether the Bush administration should ask Congress for permission to use the remaining $350bn of the funds - though this might become somewhat academic after Obama’s January 20 inauguration.
More ominously, for Pandit, at least, Levin questioned whether Citi was going to use the federal bailout funds to “keep people in their homes, to revise mortgages”, or whether it was “going to use this to pay dividends to stockholders, which they shouldn’t…”
“How are they going to handle executive compensation … What are they going to do about the money being used to buy other banks?” he said.
All fair questions, we’d say…
Oh, and an aside on the Citi-Morgan Stanley deal: Felix Salmon at Portfolio.com has done some interesting mathematics on the deal.
