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Reuters rolled this headline Tuesday morning: Citigroup: $45 billion TARP money goes toward loans. "Citigroup Inc said on Tuesday that the committee overseeing its use of $45 billion of taxpayer money had approved the use of nearly all of that sum to make loans. The New York-based bank said the committee had approved $44.75 billion of lending initiatives as of March 31, including $8.25 billion for new programs in the first quarter. Citigroup said the new loans included $5 billion to municipalities, universities and nonprofit hospitals; $2 billion to help fund small and midsized businesses; $1 billion for residential mortgages; and $250 million for auto loans." But how can Citi lend out all of its capital? Simple, it doesn't. Just turn to another wire service, The Associated Press, for a better explanation: "Banks like Citigroup do not lend the TARP money directly to borrowers. Instead, the banks keep the extra capital on their books, which allows them to borrow more money from funding sources. Then, they lend that borrowed money to others. A bank makes money by borrowing cheaply for the short-term and lending at higher rates for the long-term; if a bank has no capital, other institutions and investors won't lend to it." Another reason we know that the Reuters story makes little sense is the Federal Reserve's stress tests, which showed the bank needed to raise an additional $5.5 billion in capital -- Citi will meet the requirement by converting more preferred stock into common stock. Clusterstock's Joe Weisenthal argues this point: "So if 'all of that money' is going to new loans, then that must mean almost none of it is going to building up its capital cushion. Except we know that's not true. The whole point of the TARP infusion (especially the second one, which was never sold as a way to boost lending) and the stress tests was to help bolster the company's equity base." What we do know is the bank increased lending from the $36.5 billion it was lending in February. So should we praise Citi for doing its job as a bank by lending more? Conor Clarke over at The Atlantic thinks not: "This is really a minor point. But I thought it was annoying when banking executives claimed that their bonus payments 'would come out of operating revenue, not government bailout funds.' That was a terrible argument and it deserved to be heartily mocked. By the same principle, banks don't deserve any special praise when they decide to start lending again using special 'government bailout funds' instead of regular plain-vanilla dollars." So, basically Citi is just doing it's job as a bank, which is lending and making money off of it. Wow. Go figure, such a novel idea. - Maria Woehr Follow me on Twitter @newsgirlmw
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A wire report claims Citigroup Inc. (NYSE:C) is apparently using all of the $45 billion it received from the U.S. Treasury's Troubled Asset Relief Program funds to make loans. Yeah, right. Nice one. 
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