Tags: Treasury | U.S. | Citi | Bailout

Treasury Official: U.S. Had No Choice on Citi Bailout

Thursday, 04 Mar 2010 04:34 PM

 The U.S. government had to invest bailout money in Citigroup to keep the financial crisis from worsening and should make money on its investment, a senior Treasury Department official said on Thursday.

Herbert Allison, assistant Treasury secretary for financial stability, told a Congressional Oversight Panel that the government had to act in the fall of 2008 because further deterioration of Citigroup would have caused doubt that U.S. policymakers would support the banking system.

"More generally, given Citigroup's substantial international presence, global liquidity pressures would likely have increased and confidence in U.S. assets more broadly would have declined," Allison said.

Meanwhile, Citigroup Chief Executive Vikram Pandit voiced support for key Obama administration financial reform goals, including a consumer protection authority, but government watchdogs questioned his earnestness.

In testimony to a panel that helps police government bailout efforts, Pandit advocated a watered-down version of a consumer protection agency proposed by Obama and said banks generally should not engage in trading for their own profit, noting that Citigroup has scaled far back on such activity.

However, he stopped short of a full endorsement of the so-called "Volcker rule," which would explicitly ban banks from buying and selling investments for their own books unrelated to customer accounts. The U.S. Treasury sent legislative language on the proposal to lawmakers on Wednesday.

"Let me be very clear: proprietary trading is not a big part of our business at all and I don't think banks should be speculating using banks' capital," Pandit said.

The supportive comments from the Citigroup CEO, whose bank is 27 percent owned by the U.S. government after $45 billion worth of bailouts in 2008 and 2009, rang hollow with some panel members. Paul Atkins, a former member of the Securities and Exchange Commission, said it appeared that Citigroup was becoming "politicized."

But a smiling Pandit appeared relaxed and confident through a less-than-heated grilling in which he declared that Citigroup no longer needs government funds. All of Citi's businesses were solvent, he said, adding that he was focused on profitability and supporting his clients.

"Taxpayers still hold 27 percent of our common stock and we look forward to helping them make money on that investment," he said.

The government stepped in to prop up Citigroup at the height of the financial crisis in October 2008 when officials at the Treasury feared the bank's crumbling financial condition could destabilize financial markets worldwide.



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The U.S. government had to invest bailout money in Citigroup to keep the financial crisis from worsening and should make money on its investment, a senior Treasury Department official said on Thursday. Herbert Allison, assistant Treasury secretary for financial stability,...
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