Buy Citigroup stock if you want to pay for executive bonuses.

Yesterday’s announcement that Citigroup is repaying the $20 billion it owes the federal government in TARP (aka  “bailout”) funds rightfully focused on the news that yet another bank was returning the loan.  Many new stories–but not all and none of the shorter ones–also mentioned the curious fact that Citigroup was going to sell $20.5 billion in stock to finance the return of the money. 

No one yet has connected the dots between these two facts, so let’s do it now as Socrates would have, which means we’ll ask a series of questions to which we already know the answers.

  1. Why is Citigroup returning the money?  So they can have more flexibility in giving bonuses to executives (now that the crisis has passed).
  2. Why is Citigroup floating stock?  So they can pay off the TARP funds.
  3. What then are the new investors into Citigroup investing in?  Bonuses for executives.  

By buying the new stock, investors will water down the stock (since there will be more shares out now for a company worth the same, so each share represents a smaller piece than before).  The investment will also facilitate an increase in the company’s cost structure since it will enable the company to give out those bonuses.

I’m not a stock picker and I don’t give stock advice, but I don’t mind telling readers that I won’t be buying any of the new Citigroup stock.

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One comment on “Buy Citigroup stock if you want to pay for executive bonuses.
  1. what a city says:

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