NEW YORK — Citigroup, under pressure to increase its lending, says it will spend $36.5 billion to issue mortgages, make credit card loans and buy distressed assets in the tight credit markets in the coming months.
The decision arrives after the bank received $45 billion in capital from the federal government in two installments late last year, and taxpayers’ questions mounted about the use of that money.
In a report that Citigroup Inc. plans to release this morning, the bank detailed how it is boosting lending efforts by using funds from the Troubled Assets Relief Program, or TARP.
It’s not that the $45 billion in TARP is being doled out by Citigroup directly to borrowers. Rather, having the extra capital allows the bank to borrow more money from various funding sources, and then lend that money out to others. A bank makes money by borrowing cheaply for the short-term and lending at higher rates for the long-term; if a bank has no capital, other institutions and investors won’t lend to it.
So while Citigroup says it will deploy $36.5 billion in the coming months as a result of TARP, that figure could grow substantially.
“Our responsibility is to put these funds to work quickly, prudently and transparently to increase available lending and liquidity,” said CEO Vikram Pandit in a statement included in the report.
“TARP capital will not be used for compensation and bonuses, dividend payments, lobbying or government relations activities, or any activities related to market, advertising and corporate sponsorship,” Pandit said.
After considering $51.2 billion worth of proposals from its various arms, the bank said it approved $36.5 billion. That includes $25.7 billion in U.S. residential mortgage activities; $5.8 billion in credit card lending; $2.5 billion in personal and business loans; $1.5 billion in corporate loan activity; and $1 billion in student loans.
The $36.5 billion deployment is in addition to the $75 billion in new loans that Citigroup made in the fourth quarter. It also does not include the $10 billion Citigroup used in November to buy pools of mortgages secured by Fannie Mae.
Of the $25.7 billion Citigroup set aside for U.S. residential mortgage activities, $10 billion will go toward buying securities backed by mortgages that conform to Fannie Mae and Freddie Mac standards. Another $7.5 billion will be used to buy prime home mortgages in the secondary markets. The final $8.2 billion will be mortgages issued directly to aspiring homeowners — including mortgages with values that exceed the limits set for government-sponsored loans.
Citigroup will be making more loans than it would have without TARP, but said in the report it will not “take excessive risk with the capital the American public and other investors have entrusted to the company.”
The bank will continue to read proposals for increased lending from its various divisions, and plans to issue quarterly reports on TARP use.
While TARP will be used to back lending efforts, Citigroup’s expenses will come out of its cash flow, the bank said.
The government has used TARP money, in many cases, to buy preferred stock in banks.
Where TARP capital sits on banks’ books, however, is just a technicality to many of Wall Street’s critics, who have harshly excoriated banks for their spending decisions.
New York state Comptroller Thomas DiNapoli reported last week that Wall Street spent $18.4 billion on bonuses for 2008; President Barack Obama called the payouts “shameful.”
Citigroup has been criticized for its corporate jets — most recently, the fact that Citigroup’s former CEO Sanford “Sandy” Weill, as a consultant to the company, had a contract that allowed him to use the jet for personal trips.
Citigroup’s announcement about TARP use comes as the government tries to figure out how to help the nation’s ailing banks so they can lend more. Treasury Secretary Timothy Geithner is expected to announce new plans for rescuing the financial sector.