Government Bails Out Citigroup by Investing $20 Billion and Backing $306 Billion in Assets

Update: Here's the government's bailout plan for Citigroup: The government will invest $20 billion directly into Citigroup while also backing $306 billion in loans and securities (the Times says the plan is "complex"). In return, Bloomberg News says the government gets "$27 billion of preferred shares paying an 8 percent dividend."

The NY Post notes, "Under the deal, the government will have the right to slash the huge pay packages and bonuses that Citi's executives had long enjoyed, and cap stockholder dividends at only 1 cent per share."

You can read the full statement from the Treasury, Federal Reserve and FDIC here, but here's a little excerpt:

With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy.

We will continue to use all of our resources to preserve the strength of our banking institutions and promote the process of repair and recovery and to manage risks. The following principles guide our efforts:

- We will work to support a healthy resumption of credit flows to households and businesses.
- We will exercise prudent stewardship of taxpayer resources.
- We will carefully circumscribe the involvement of government in the financial sector.
- We will bolster the efforts of financial institutions to attract private capital.

Citi is still receiving the $25 billion from the Troubled Asset Relief Program.

Earlier:The federal government is "nearing approval of a radical plan to stabilize Citigroup on Sunday in which the government would soak up tens of billions of dollars in losses at the struggling bank," according to the NY Times. Last week, Citigroup stock fell 60% and worries swirled around its financial health. The company, which suffered a great deal with the subprime mortgage crisis, also announced it would eliminate over 50,000 jobs.

According to CNBC, the government's "main priority" would be to give Citigroup a $10-20 billion equity infusion, but it's "provisional and subject to change. The plan will probably be a multi-layered one, which means the government could backstop losses on Citigroup's troubled assets as well. In exchange, Citi may issue preferred stock to the government."

The Wall Street Journal adds, "Another possibility on the table was the creation of what is sometimes called a 'bad bank' -- an outside entity designed to hold some of a financial firm's worst assets. That structure would help Citigroup cleanse itself of billions of dollars in weak assets, these people said." Mellon Bank (now Bank of New York Mellon Corp.) was saved by using the "bad bank" structure.

Photograph outside Citigroup's Park Avenue offices by Jin Lee/AP

Contact the author of this article or email tips@gothamist.com with further questions, comments or tips.

By Jen Chung in News on November 24, 2008 9:00 AM

Comments [rss]

NannyState

Chuck Prince and Sandy Weill need to be publicly decapitated and their heads stuck onto the fence at The Battery. Pandit inherited a horrible balance sheet but he's the one who tried to buy Wachovia after it fried out. So how smart is this schmuck? He's got the worst financials east of Countrywide Mortgage and he wants more? While he may be spared the executioner's axe, he should nonetheless be stretched over searing heat until the evil vapors depart him.

Kojak

A Falling stock price points to a loss of confidence in the bank, even if whats driving it down are speculators and short sellers. You won't see a rush of people running to take money out of the bank thanks to the FDIC's everyone's entire deposit at Citi, not just up to 250k, but that won't people internationally as they arent covered under the same rule, especially in China and Hong Kong where there has been a run on a few banks lately.

A loss of confidence in a bank which happens to be by some measures the world's largest (Not to mention one of this city's largest employers) is bad. VERY BAD.

And the bank has trillions of dollars in assets and liabilities. If it goes under you'll see a de-leveraging and unraveling of the market the likes of which you have never seen. Shitstorm of biblical proportions that would make the Lehmen Brothers failure look like child's play. But its said that Citibank is in better shape than the investment banks are since they do have more access to government loans, not to mention a massive deposit base to fall back on.

But I'd prefer that they not use my savings to help prop up their balance sheet. I guess that's how it goes when you put your money in any bank. Next time I'll hide my shit under my mattress.

Bottomless Chips

#8 - since everything is depreciating now doesn't that even out? I guess once the inflation bounceback happens in the coming year then you are fucked.

Unfortunately, the media doesn't understand deflation. Yes, price have been coming down, but that's not deflation in the economic sense of the world. Deflation would be contracting the money supply. However, the M2 and independently published M3 projections have us still running at record pace; I mean it makes sense: where else is all of this money going to come from?

But to answer your question, aside from my MSM rant, no: Demand for many things is down now, but, historically, food and energy always peak when you run huge amounts of inflation. Generally it takes 8-12 months for interest rate cuts to rear its head, but it could happen sooner than later, not to mention all of this new money we've created.

smacky

Who is gonna bail us out we need it? Oh, that's right. NOONE

tingo

Then again, I'm glad I dropped half my life saving into C on friday. Gambles do pay off sometimes. Love this country!

JacqueMehoff

can't they sell their insurance arm or banking arm or any arm?

brooklynbird

Citibank is truly Shittybank. They treat their customers extremely poorly, do not have any kind of community spirit, and do not deserve to be extricated from their own mess. Happily, I extricated myself from their grip several years again, and I would never set foot in a Citibank again.

r1b2

Sorry, should have read:

Stock's already up 54%. Nice to see investors get rich quick by the gov't throwing good money at bad banking.

r1b2

Stocks already up 54%. Nice to see investors get rich quick by the gov't throwing good money at bad banking.

GM

#8 It's actually worse than that. The government printing presses are running full speed yet prices are falling. It's the spiral of depressionary death that we're trying to not get sucked into. So far, it appears that we're not winning.

sinisterteashop

Well, we're now in bed with the biggest corrupt and festering boil of all the banks. Pop it and it and we've got its puss all over us.

babyhitler

#8 - since everything is depreciating now doesn't that even out? I guess once the inflation bounceback happens in the coming year then you are fucked.

Felix Hoenikker

I'll puke if those jagoffs still get bonuses.

Bubba

How about a bailout of the MTA?

Bottomless Chips

Yeah, my tax dollars paying for more banking mistakes!

It's not your tax dollars being used; it's new money being created. It's an "inflation tax." Anything you own or money you have saved is worth less today than it was yesterday.

Atomische

So now you get free money just because your stock price tanks? This is getting ridiculous.

r1b2

Yeah, my tax dollars paying for more banking mistakes!

tingo

Where I live, there's a citi, a chase and a b of a right across from eachother, ruining the landscape with their overbright facades. I hope they all fail.

blablanyc

The gov't bailing out Citi isn't a resolution. Pandit is too clueless to fix Citi.

U.S. agrees to bail out Citigroup

http://www.marketwatch.com/news/story/US-agrees-bail-out-Citigroup/story.aspx?guid={15A026EC-CEA0-4C82-92EC-199B794F0968}