U.S. gave up billions in tax money in deal for Citigroup's bailout repayment

Washington Post ^ | 12/15/09 | Binyamin Appelbaum

[Bokababe]

Deal made to recover bailout Firms exempted from rule when U.S. sells its stake

[Soothesayer9]

AMA/State boards

[TomasUSMC]

At the tone, leave a whimper.

Our present War Cry

[Bokababe]

"Didn’t Obama just say he didn’t become President so that he could bail out the “fat cat bankers” on wall st.?"

Yes, he did.

Meanwhile, "IRS hires hundreds for new wealth unit". So, while Obama is actually "bailing out fat cat (Citibank, who contributed to his campaign) bankers", he has simultaneously yelled, "Attack" to the the IRS, on the rest of us.

None of this really surprises me, since years ago I watched Bill Clinton do everything possible to create the most vicious war possible in the Balkans, while publicly calling for "Peace". But this Orwellian political double-speak may come as a real shock to the rest of America.

Just know that "The Barrack Hussein Obama Show" has been many years in the making, geared to exploiting our every hope, dream, and stupid trust in wishful thinking.

[IGBT]

it’s ok. the obama will raise taxes on all to give more away. isn’t it all wonderful?? thats why they want the carbon-CON tax.

[CutePuppy]

There is more to this story than the populist torches and pitchforks story WaPo is reporting. And I'm no fan of either.

You are right, there is. Since it would be silly for the government to tax itself, the pro rata part of Citi that will be owned by the "government" - after the conversion of debt into shares - will not be taxed on its profits, thus "giving up billions in tax money", in WaPo vernacular.

US Forgoes Billions in Tax on Citi - CNBC staff and wire reports, 2009 December 15

The U.S. government "quietly" agreed not to collect billions of dollars in potential taxes from Citigroup as part of its deal to allow the bank to repay its taxpayer bailout, The Washington Post reported.

The Internal Revenue Service issued a notice on Friday that extends the benefit to Citi and other companies in which the government owns a stake, the Post reported.

A Citigroup spokesman declined to comment.

The Washington Post said the precise value of the IRS ruling depends on Citigroup's future profitability and other factors, but the newspaper cited two accounting experts as estimating Citi would save at least several billion dollars.

A Treasury spokesperson told CNBC: "This rule was designed to stop corporate raiders from using shell losses to evade taxes, and was never intended to address the unprecedented situation where the government owned share in banks."

At the end of the third quarter, Citi said its past losses were valued at about $38 billion, allowing it to avoid taxes on its next $38 billion in profits, but under normal IRS rules, a change in control would have sharply reduced the amount the company could shelter from taxes, the newspaper said.

Under a deal announced Monday, Citi will sell $17 billion of common stock and about $3.5 billion of securities that turn into common shares in three years, helping the bank repay the bailout.

The government will also stop guaranteeing a pool of toxic assets against excessive losses, and will sell the nearly $30 billion in shares it owns.

[CutePuppy]

In addition, there are FASB and IRS change of control (ownership) rules that prevent portions of NOLs (non-operating losses) being realized in M&A transactions, which formerly made companies with large NOLs attractive merger targets for profitable companies, to shelter / offset future profits :

"This rule was designed to stop corporate raiders from using shell losses to evade taxes, and was never intended to address the unprecedented situation where the government owned share in banks."

... under normal IRS rules, a change in control would have sharply reduced the amount the company could shelter from taxes.

[LibertyRocks]

That’s something I didn’t consider. You’re right of course. The risk to them would be too great...

[investigateworld]

Ping

[potlatch]

Bump your post, Lori.

[FromLori]

yes lol even the bankers new that was a pr play

“It’s a p.r. stunt,” says an executive at one of the banks that will be getting a dressing-down at the White House meeting.

Read more: http://www.time.com/time/business/article/0,8599,1947411,00.html#ixzz0ZtAaGyLF

http://www.opensecrets.org/orgs/list.php?order=A

http://www.opensecrets.org/news/2009/07/jpmorgan-ceo-jamie-dimon-donat.html

http://www.nlpc.org/stories/2009/12/07/goldman-sachs-challenged-embrace-global-warming-wake-%E2%80%98climategate%E2%80%99

http://www.businessinsider.com/goldman-sachs-changes-its-status-to-financial-holding-company-2009-8

barack-obama-expands-goldman-sachs-power.html

http://www.ritholtz.com/blog/2009/03/backdoor-bailouts-for-goldman-sachs/

http://www.propublica.org/ion/stimulus/item/stimulus-transparency-watchdogs-keep-contract-details-a-secret-813

http://www.noquarterusa.net/blog/2009/07/02/will-cap-and-trade-be-the-next-bubble/

http://www.salon.com/opinion/greenwald/2009/04/04/summers/

http://www.economicpolicyjournal.com/2009/07/president-obamas-favorite-banker.html

http://www.nytimes.com/2009/07/19/business/19dimon.html

http://www.americanthinker.com/2009/07/will_dems_allow_goldman_to_man.html

http://thehill.com/opinion/columnists/brent-budowsky/72169-obamas-fat-cats

[FromLori]

yes lol even the bankers knew that was a public relations play

“It’s a p.r. stunt,” says an executive at one of the banks that will be getting a dressing-down at the White House meeting.

Read more: http://www.time.com/time/business/article/0,8599,1947411,00.html#ixzz0ZtAaGyLF

http://www.opensecrets.org/orgs/list.php?order=A

http://www.opensecrets.org/news/2009/07/jpmorgan-ceo-jamie-dimon-donat.html

http://www.nlpc.org/stories/2009/12/07/goldman-sachs-challenged-embrace-global-warming-wake-%E2%80%98climategate%E2%80%99

http://www.businessinsider.com/goldman-sachs-changes-its-status-to-financial-holding-company-2009-8

barack-obama-expands-goldman-sachs-power.html

http://www.ritholtz.com/blog/2009/03/backdoor-bailouts-for-goldman-sachs/

http://www.propublica.org/ion/stimulus/item/stimulus-transparency-watchdogs-keep-contract-details-a-secret-813

http://www.noquarterusa.net/blog/2009/07/02/will-cap-and-trade-be-the-next-bubble/

http://www.salon.com/opinion/greenwald/2009/04/04/summers/

http://www.economicpolicyjournal.com/2009/07/president-obamas-favorite-banker.html

http://www.nytimes.com/2009/07/19/business/19dimon.html

http://www.americanthinker.com/2009/07/will_dems_allow_goldman_to_man.html

http://thehill.com/opinion/columnists/brent-budowsky/72169-obamas-fat-cats

[Hoodat]

The rule change enabled Citigroup to repay the government, officials said, arguing that the ruling benefited taxpayers since it would make Citigroup shares more valuable.

And this is an admission by the government that they are using their absolute power to manipulate the stock price of a company. Can you say "Enron"?

[JasonC]

No, the asset loss agreement was removed along with the TARP repayment. No guarantee from the treasury or Fed to those assets remains or is necessary.

All the supposedly toxic assets have been rising in price since March of 2009 anyway, on the general rally in the bond market. The worst junk on Citi's books went from 30 cents on the dollar at the March lows to 45 recently.

Existing shareholders have been massively diluted by new equity issued at low prices, but that and not solvency is the issue at Citi.

[JasonC]

Pretending that non-existent taxes on profits that aren't profits and never were nor ever were going to be, are "lost revenue", is complete lying start to finish. Once again all we have here is more proof that any lie will be believed if it smears anyone connected to finance.

The treasury is going to make money, net, on all of its dealings with Citigroup. It has not lost a dime to date and it isn't going to. Magical mystery accounting of fantasy wealth Citi was supposed to pay the treasury if trees grew to the sky are not "revenue". Investment in Citi stock, preferred or common, are not "losses".

But everyone wants to hate these people, so they make up any lie they can at the precise moment their thesis is collapsing, because the treasury is being repaid by private money.

It is sickening that people pretending to be conservatives are in any way connected with this. It is all transparent lies and slander, start to finish. Ask any of them to state the amount that the US treasury has lost on TARP for banks, or Citi specifically. They can't, they are practicing not even one entry accounting, but pure make believe accounting.

[Toddsterpatriot]

Did anyone actually think we’d see these funds back? I know I was told by a lot here to “trust”, support the bailouts & such, and that we’d get back our money with interest...

We did get back a big chunk of these funds, with interest. I'll be shocked if we get more than a tiny part of the auto bailout money back.

[CutePuppy]

And to think that all of this was clearly spelled out in original statement, yet WaPo managed to put a sinister headline on this (and they are not alone in this "art").

What's worse, as you said, it's that so many conservatives can't take a "yes" for an answer, or take credit for the good things that happened that they were responsible for, just because the consequences happen to be on somebody else's "watch". It also denies us credibility when we comment on truly bad things happening that are direct result of liberal programs (such as non-stimulus / Porkulus) because people start to tune out and reject the conclusions due to a priori false commentary.

"It ain't what you don't know that gets you in trouble, it's what you know for sure that just ain't so" - Mark Twain.

Negativity is the rule of the day. That's how they lost the initiative (and re-election) to Clinton who was able to take credit for all the good things happening at the time that he had nothing to do with.

[JasonC]

Correct. They have just become me-too doom-mongers.

Reagan owned faith in freedom and capitalism to always win through in the end. The present crowd isn't fit to clean his shoes...

[allmost]

Do you have a link for that? Specifying the Citi Holding’s part in all this. They spun it off to keep the ‘Citi’ name clear and above water. I have serious doubts that the CDS’s, MBS’s, and most other ‘toxic’ assets have appreciated that much as well BTW.

[JasonC]

First on the losses sharing agreement. The original pool of assets was about $300 billion, but it has run off to $250 billion as of its termination (mostly from loans being repaid, especially mortgages in the pools refinanced, and the like). Citi took $8.1 billion in losses on this pool. Under the loss sharing agreement, it was responsible for the first $39.5 billion in losses, from the beginning. The Treasury got around $8 billion in preferred stock for agreeing to cover 90% of anything beyond that (actually split between the UST, the FDIC, and the New York Fed, for the next $5 billion, $10 billion, and remainder, respectively). So none of the government counterparties were going to owe anything unless Citi took a giant bath on this asset pool. It was mostly a confidence building measure, and a rather expensive one for Citi, but useful at the time.

As part of its repayment of TARP, Citi is exiting this loss sharing agreement, in return for retirement of the preferred stock it issued in exchange for it. Citi is booking a $2 billion loss on that part, largely related to repaying the warrants it issued along with the preferred (it was also paying interest etc).

Here is the press release filing at the SEC announcing their exiting the loss sharing agreement -

Edgar filing on Citi repayment and stock offering

Next as to what happened to those asset classes. Here is a link to the standard tracking pool used to measure the performance of subprime mortgage pools, from "Markit", which is a data provider in this area. Note that Citi owned primarily the AAA tranches of its subprime securitizations, with a large position in the 2006-2 vintage in particular. The worst "vintages" of those hit 23 cents on the dollar back in March of 2009, but now trade for 34 cents on the dollar (those are 2007 originations), while the 2006-2 originations are around 45 up from 29.

Markit ABX indices on subprime mortgage pools

[JasonC]

As for what was in the covered asset pool, naturally it was not all subprime mortgages. The following is the breakdown as of the end of September.

$81 billion in consumer first mortgages
$50 billion in consumer second mortgages
$11 billion in auto loans
$18 billion other consumer loans
$11 billion in commercial real estate loans
$11 billion in other corporate loans
$9 billion in Alt-A securitizations
$6 billion in SIV securitizations
$2 billion in commercial real estate securitizations
$8 billion "other" securitizations (subprimes, here)
$18 billion in unfunded commitments, 2nd mortgages
$4 billion in unfunded commitments, commercial real estate
$2 billion in unfunded commitments, other consumer
$21 billion in unfunded commitments, other corporate

Understand, "unfunded commitments" means unused portions of lines of credit and possible borrowing on revolving credit facilities and the like, and those are $45 billion of the $250 billion total amount.

The "toxic assets" in the sense most commonly used during the crisis peak, meaning subprime mortgage securitizations and CDOs and such, are all in the $23 billion "securitizations" classes given above, with the highest loss subprime portion already run off or written down to $8 billion by the end of September.

Citi's loan loss reserve (already charged to earnings for anticipated losses) was $36.4 billion as of the same date.