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Citigroup, Wells Fargo Itching to Repay TARP Funds

With Bank of America (BAC) moving to repay its TARP loans, Citigroup and Wells Fargo are bucking to settle their own debts and get out from under the government's thumb.

Yet the banking giants are at odds with federal authorities over how much capital they need to win approval to exit the program, according to reports. Federal Reserve and Treasury officials want Citi (C) and Wells (WFC) to build a larger capital cushion, relative to what was required for B of A. Says the WSJ:

Citigroup is looking to redeem $20 billion in preferred stock, while Wells Fargo got $25 billion from TARP. Citigroup executives have been told they need to raise $20 billion in common stock to leave TARP, these people said. Wells Fargo was told it would have to drum up billions of dollars in new capital.

With a stock-market value of less than $100 billion, Citigroup executives are worried about diluting shareholders by more than 20% if it issued $20 billion in new shares. "That's a pretty tough pill to swallow," said a person familiar with the New York company's discussions with the government.

Part of the reason Citi and Wells are eager to repay TARP is to escape government limits on executive compensation for big companies that borrowed money under the program.

But the companies also want to be free of any restrictions that could hinder business as economies around the world begin to rebound. Investing abroad while still on the hook with U.S. taxpayers would be poor public relations, an open invitation for any lawmaker looking to score a few headlines.

And while the U.S. economy continues to stutter, inhibiting domestic growth for banks, certain regions of the world are recovering quickly. In a report out today, Citi's Investment Research and Analysis group predicts "sustained" economic momentum in China and other parts of Asia, with a more gradual recovery in Europe and Japan (no public link).

Says Michael Saunders, global head of Developed Markets Economics at Citi, in the report:

"After the most severe global recession for decades, we now expect a sustained but uneven global recovery. Almost all major economies exited recession in Q2 and Q3, and we again make more growth forecast upgrades than downgrades. This month, we are upgrading our 2010 GDP forecasts for the U.S., Japan, U.K., Australia, New Zealand, Hong Kong, Korea, Argentina, Hungary, Poland, Czech Republic and Turkey."
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