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Street Wants Citi to Use Cash For TARP

Will they or won't they? Citigroup Chairman Richard Parsons told CNBC's Scott Cohn that they were in negotiations with regulators on how to proceed with the repayment of $20 billion in TARP money owed to the government; our Maria Bartiromo also said that CEO Vikram Pandit has changed his travel plans to complete the deal.

One sell-side trader I was supposed to meet for dinner told me he would be late because of a large deal that might come tonight; he declined to say what deal it was.

If they were forced to raise capital on a dollar for dollar basis to repay the $20 billion, Rochdale analyst Richard Bove figures they would need to sell about 5.5 billion shares at $3.75 (currently $3.83), which would dilute shareholders by about 20%.

But do they need to raise $20 billion IN EQUITY? That's what the negotiations with regulators are about--B of A/Merrill Lynch's bank analyst Guy Mozkowski, in a note to clients this morning, said "the issue is regulatory capital required as government withdraws."

Simply put, the government wants more capital. The hope among some traders: half in equity, half in cash, which would be less dilutive on both a per-share basis and earnings.

Remember, all this negotiation is just to pay back the Trust Preferreds. The government still owns 7.7 billion common shares, plus $7 billion in preferred stock to "ring-fence" guarantee on $200 billion of assets.

But that is an issue that will need to be resolved on another day.

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