Citigroup (C) Sends Mixed Messages On FDIC Debt Guarantees

According to reports from Bloomberg, Citigroup (NYSE: C) plans to exit the FDIC's debt guarantee program, without an emergency extension, when it expires on Oct. 31. If this is true, then the company is sending mixed message to the market.

Citigroup had over $72.4 billion on FDIC-backed bonds as of June 30, and leaving the debt guarantee program would test Citigroup's ability to fund itself.

If Citigroup is truly going to exit the program then yesterday's sale of $5 billion in government backed debt is sending mixed-message to the market. Why issue new debt with the government guarantees when you plan to completely exit the program in six weeks?

The FDIC's debt guarantee program was originally set to expire at the end of June, but was extended through October. Last week, the FDIC said it will extend the program by six month on a case-by-case emergency basis for banks that can demonstrate an "inability to issue non-guaranteed debt or to replace maturing debt as a result of market disruptions."

Bank of America (NYSE: BAC) and General Electric (NYSE: GE), both big users of the program in the past, have said they received approval from the FDIC to exit the program. Citigroup's other rivals have mostly stopped using the FDIC program. The last banks to use the debt guarantees, besides Citigroup, was GMAC in June and US Bancorp (NYSE: USB) in May.

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