A Closer Look: Despite TARP spin, lending falls at Citi during first quarter

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Did Citigroup (C) just say it cut back on consumer and business lending in the first three months of 2009? It seems so. Deep in a quarterly update on how it's using the $45 billion in capital it received from the government, released this morning, Citi revealed that its new lending fell 13 percent in the first quarter if stock and bond underwriting aren't counted.

Citi says its total lending surged in the three months ending in March. But that takes into account a surge in securities underwriting. Ignore the jump and loans to individuals and businesses for purposes other than issuing equity or debt fell from $60.1 billion in the final quarter of 2008 to $52.4 billion in the first three months of 2009, Citi says.
There's less demand for new loans as declines in home values and stock prices have pounded have pounded household net worth, and consumers and businesses alike are racing to pay down debt, Citi Chief Financial Officer Ned Kelly says in the report.

"We continue to extend new loans to consumers and businesses," Kelly says. "At the same time, we have an obligation to our stakeholders, including U.S. taxpayers, to make prudent lending decisions that reduce our exposure to potential loan losses."

A quick read of the report shows that Citi says it will use the $45 billion in capital it has received from the government to make nearly that much in new loans. But a closer look serves as a reminder that the embattled bank's plans are a little more complicated than that.

Although Citi said in February that it started deploying a huge chunk of the capital it received under the Treasury's Troubled Asset Relief Program, or TARP, in the fourth quarter of last year, only $8.2 billion has been spent so far, the company reports today. "Most of the money Citi has utilized so far has been used to purchase mortgage securities in the secondary market," the company says, which "provides new liquidity to lenders who need to replenish their funds." This isn't It's a Wonderful Life, after all.

Only $267 million of the money spent thus far has gone to new loans, according to the report.

All told, $17.5 billion, or about 40 percent of the money deployed by Citi's "Special TARP Committee" of senior executives, is tabbed for buying mortgage-backed securities in the secondary market, according to the document. But that's no surprise -- the company disclosed that portion of its plan in February.

Still, with the Associated Press reporting that Citi is "using its $45 billion in government capital to make nearly that much in new loans," it's worth pointing out that not all of that money is being lent out.

After the moves announced today, will bring the total value of investments supported by TARP funds to $44.75 billion, from $36.5 billion announced earlier this year.
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