Citigroup's bailout: The reaction

December 15, 2009 | By Jim Kim

The move by Citigroup (C) to repay its TARP obligations seems to some as motivated by a desire to keep up with Bank of America (BAC) more than an indication of the bank's reclaimed health. True, the stock market has picked up, allowing for tantalizing capital raising opportunities. But there are plenty of people who think this is premature, something we alluded to earlier.

Richard Bove of Rochdale Securities, downgraded the stock from a "buy" to a "sell" rating. "What does it do for the company? Management can increase [executive] salaries," he told Time. "What else? Nothing." Indeed, earnings will be hit. Dilution could send earnings per share lower by about 20 to 25 percent. Bove predicts the TARP repayment will lower the company's Tier 1 capital ratio to near 11 percent from nearly 13 percent. Of course, if earnings really tumble, so will key capital ratios. There's a lot on the line here. There will be no more bailouts with public funds.

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