Citigroup’s Pandit: We Owe Taxpayers ‘Debt of Gratitude’

BY Carolyn O'Hara  March 4, 2010 at 3:12 PM EDT

Citigroup’s CEO Vikram Pandit appeared before the congressional TARP watchdog Thursday and said American taxpayers still hold 27 percent of Citi’s common stock, and “we look forward to helping them realize value on that investment.” The bank, which he called “well capitalized,” owes American taxpayers “a large debt of gratitude.”

American taxpayers still hold 27 percent of Citi’s common stock, and we look forward to helping them realize value on that investment,” Pandit said.

But members of the panel, led by Elizabeth Warren, expressed concern that the bank enjoys an implicit “guarantee” from the government that it will not be allowed to fail, and suggested that such a guarantee might lead the bank to take more risk than it should.

In her opening statement, Warren said:

The sheer magnitude of Citigroup’s operations, and the company’s history of receiving extraordinary government support, has led this panel to an inescapable conclusion: Citigroup, along with a handful of other financial institutions, enjoys an implicit government guarantee. The United States government will bear any burden and pay any price to ensure that Citigroup does not fail.

On Feb. 10, Standard & Poor’s issued Citigroup a credit rating of A — three grades higher than it would otherwise―”to reflect the likelihood that if further extraordinary government support were needed, it would be forthcoming.”

In other words, were it not for the market’s view that Citigroup enjoyed an implicit government guarantee–a view reinforced in dramatic fashion by the bailout that this Panel oversees — then it would cost Citigroup more to do business and it would be viewed as a riskier investment.

Pandit said that Citigroup is in a “much healthier position” than when he took over the company in December 2007, citing a reduced balance sheet with strong liquidity and less leverage.

Panelist Damon Silver, however, was hesitant to accept Pandit’s suggestion about the bank’s health. “I remain concerned that Citigroup’s balance sheet remains vulnerable,” Silver said in his opening remarks, “that Citigroup is only intermittently profitable and that there are continuing pressures on Citigroup to repeat the events of the bubble cycle….”