Citigroup to Exit TARP, but Remains Shaky

What's wrong with this picture? On "60 Minutes" last night, President Obama sternly tells the country that "did not run for office to be helping out a bunch of fat-cat bankers on Wall Street." Less than 24 hours later, Citigroup announces that it's repaying $45 billion in TARP loans.

It's a study in cognitive dissonance, also known as Washington, D.C.

Let's get something straight -- The Treasury Department is doing Citigroup (C) a walloping big favor in letting the company exit TARP. The banking giant wants out of the program to shed the taint of being on the public dole. It also wants freedom from Czar Feinberg's decrees on executive compensation. And the company has reportedly been lobbying the government hard for it to be allowed to refund what it borrowed.

The central question is whether Citi is financially sound enough to leave TARP. If so, hooray. It's surely a good thing that the company believes it is healthy enough to repay taxpayers. And obviously the U.S. economy needs a vibrant banking sector.

But it may not be in taxpayers' or the economy's longer-term interest to let Citi spend down any of its capital, even as it seeks to raise more from investors. The company is still sitting on mounds of bad loans. It remains unclear exactly how much in provisions Citi might have to sock away in coming quarters to account for those losses. And the company's shaky balance sheet suggests it may well have to raise more money.

That, of course, would affect Citi's earnings. And unless the company's financial performance improves considerably over the next year, it won't be able to increase lending. Which, along with keeping Citi from going over the falls, was the entire point of TARP.

Not that Obama was being completely disingenuous. Citi's bankers aren't as fat as they used to be.