Is Citigroup (C) Preparing to Make Another Dumb Move?

Following last week's surprise news from Bank of America (NYSE: BAC) that it will payback all of its $45 billion in TARP, attention has turned to which bank will be next to payback the government.

Well today, the Financial Times contends that Citigroup (NYSE: C) is eagerly trying to convince the U.S. government that it has the wherewithal to payback its $20 billion in remaining TARP funds. Citi has cash reserves of $240 billion, although the government owns 33.6% of the common stock after an exchange offer in September.

The FT said unless Citigroup is able to launch a successful capital raise by the middle of next week, it would become practically impossible to do so until after it reports year-end results in mid-January due to disclosure rules.

To us it would seem impractical for Citigroup to payback the remaining $20 billion in TARP, while the government still owns 34% of the common. What good would it do? It might be a good PR move, but with the government still owning 34% how is the company getting out from under the government's thumb with this move?

If Citi has the capacity to payback anything, it needs to buyback the common shares from the government first. This would be the first shareholder friendly move in years. Take care of the shareholders and maybe they'll put more in, driving the share price higher which in turn would give the company the flexibility at a later date to payback the remaining TARP.

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