Government Announces $20B Citigroup Rescue

Plan To Bail Out Financial Giant Will See Government Take $20 Billion Stake, Guarantee Millions In Risky Assets

(AP)  The government unveiled a bold plan Sunday to rescue troubled Citigroup, including taking a $20 billion stake in the firm as well as guaranteeing hundreds of billions of dollars in risky assets.

The action, announced jointly by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp., is aimed at shoring up a huge financial institution whose collapse would wreak havoc on the already crippled financial system and the U.S. economy.

The sweeping plan is geared to stemming a crisis of confidence in the company, whose stock has been hammered in the past week on worries about its financial health.

"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," the three agencies said in a statement issued Sunday night. "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," they said.

It is the latest in a string of high-profile government bailout efforts. The Fed in March provided financial backing to JPMorgan Chase's buyout of ailing Bear Stearns. Six months later, the government was forced to take over mortgage giants Fannie Mae and Freddie Mac and throw a financial lifeline - which was recently rejiggered - to insurer American International Group.

Critics worry the actions could put billions of taxpayers' dollars in jeopardy and encourage financial companies to take excessive risk on the belief that the government will bail them out of their messes.

The $20 billion cash injection by the Treasury Department will come from the $700 billion financial bailout package. The capital infusion follows an earlier one - of $25 billion - in Citigroup in which the government received an ownership stake.

As part of the plan, Treasury and the FDIC will guarantee against the "possibility of unusually large losses" on up to $306 billion of risky loans and securities backed by commercial and residential mortgages.

Under the loss-sharing arrangement, Citigroup Inc. will assume the first $29 billion in losses on the risky pool of assets. Beyond that amount, the government would absorb 90 percent of the remaining losses, and Citigroup 10 percent. Money from the $700 billion bailout and funds from the FDIC would cover the government's portion of potential losses. The Federal Reserve would finance the remaining assets with a loan to Citigroup.

As a condition of the rescue, Citigroup is barred from paying quarterly dividends to shareholders of more than 1 cent a share for three years unless the company obtains consent from the three federal agencies. The agreement also places restrictions on executive compensation, including bonuses.

The once mighty company had at one time been the largest U.S. bank by assets.

Citigroup has seen its shares lose 60 percent of their value in the past week, reflecting a crisis of confidence among skittish investors. They are worried all the risky debt on Citigroup's balance sheet will turn into losses as the economy worsens and the markets stay turbulent - losses that could be nearly impossible to reverse.

Citigroup is such a large, interconnected player in the financial system that if it were to collapse it would cause further damage to already fragile financial and economic conditions. The company has operations stretching around the globe in more than 100 countries.

Analysts consider Citigroup the most vulnerable among the major U.S. banks - especially after it failed to nab Wachovia Corp., which was bought instead by Wells Fargo & Co. That was a missed opportunity for Citi to gets its hands on much-needed U.S. deposits that would bolster its cash position.

Citigroup was especially hard hit by the meltdown in risky, subprime mortgages made to people with tarnished credit or low incomes. Foreclosures on those mortgages spiked, leaving Citi and other financial companies wracking up huge losses on the soured investments. The company has failed to turn a profit during the past four quarters and has announced plans to slash thousands of jobs.

[grthumongous]

Hearing about this inevitable intervention leaves a chalky undertaste.

The untold story is how come no "insider" blew the whistle on shenanigans like CitiGroup "investing" in $138B of Lehman Bros "Bonds" (rated ''AAA''???). Such an "investment" constitutes an "Asset" from a Bank''s perspective. But it is really just a disguised loan that might have some Accounting/Audit/PR advantages.

I propose three complementary answers:
1) the people "in the know" were too busy making money to care about anyone else
2) anyone who did speak out would be purged and tarred; ie. disgruntled, not a TeamPlayer(tm)
3) Post-ENRON lessons still not learned; Bush administration "de-supervision" and concomitant non-enforcement of fraud laws (just ask Ben Stein---no slouch) and non-enforcement of Whistleblower protection laws in SOX 2002 deterred/inhibited those "in the know" from sounding the alarm.

[mrjustice1]

To Ichabod57:

I''ve got news for you. They already own us and our children, who hardly have a choice but to seek employment with these corporate giants.

[mrjustice1]

Titled:
*US AND OTHER GOVERNMENTS SENDING THE WRONG MESSAGE
**TRANSPARENCY OF SWISS AND ALL SECRET BANK ACCOUNTS MUST BEGIN

-------------------------------
-----------------------

By bailing out those parasitic so-called investment bankers, investment advisers, brokers, as well as their accountants, their lawyers, their marketers, and other of their sales agents who aid, abet and facilitate their unrighteous operations - both on and off Wall St - legitimization of continuing future investment schemes is encouraged. In essence, such FUTURE licenses to steal and to destroy an enormously large number of people''s FUTURE financial security can be EXPECTED.

The entire world community and governments thereof, must not only prosecute and mete out long-term prison sentences to said unconscionable financial criminals, but it/they must also act accordingly, for seizure of their monies, their property, their assets, etc.

Immediate freezing and subsequent transparency of foreign and offshore, secret bank accounts MUST also begin without delay!

[Renegade.Rivers]

Just remember it was the liberal Democrats in Congress that made this all possible. You know, Pelosi, and Reed. They lead the House and Senate, and remember too, that Obama voted for the 850 billion or was it trillion, by now the numbers are all running together, bailout bill.

Also I believe it is worth noting that nearly ever pick for positions in the Obama administration have some connection to the CFR (Council on Foreign Relations.) Read more about the CFR here; http://tinyurl.com/yr7m2

In light of the choices that Obama is making, how can anyone believe that there is going to be any positive change to the present policies.

Those of you who voted for Obama it seems were sold a proverbial "pig in the poke," and some of you thought a pig in lipstick was bad. I am afraid you haven''t seen the half of it yet.

[craigh9]

STOP IT!!!!!!!!!!!!!!!!!!!!!!!!!
ENOUGH IS ENOUGH!!!!!!!!!!!!!!!!
AND ENOUGH IS TOO MUCH!!!!!!!!!!

[lloydbest1]

Doesn''t seem fair, does it, when I can make an innocent financial boo-boo and get punished for it by the loss of my entire asset base and a lifetime of penury (has not happened to me but has to others) when large institutions - such as GM and Citibank - can engage in willful stupidity and be rewarded with billions when THEIR businesses goes into the john.
The $20B government stake is really not much more reassuring than a blank check with no strings.
Nowhere in the above article do I see any commitment to change the business model, and a radical paradigm shift is needed. Nowhere do I see executive level management being required to slash their own salaries, give up their bonuses, give up their stock options, and give up their company paid pensions. Nowhere do I see a requirement that they put their personal wealth on the line to maximize the likelihood these loans (I assume they are loans?) will be paid back with appropriate interest. Nowhere do I see an insistance that all profits and dividends go toward paying off the principal and interest.
In short, I see no evidence that the high corporate officers of ANY of the businesses and institutions now seeking handouts are making the commitment to engage in the radical corporate (and personal) lifestyle altering that is so neccessary to allow these companies to become viable once again.
Come to that....I don''t see any plan of any kind to fix what has gone so horribly wrong.

[advanceus]

I haven''t seen any positive results at all of the bail out. What are they doing with the money they receive? People are still losing their homes and the banks are not making it any easier to get money, seems like they are just hording it and that isn''t going to make a difference to the recovery. The government needs to set down a list of rules on the bail outs, not just hand over billions. I''m confused!

[ichabod57]

I''m not normally a conspiracy theorist, but what happens after the government takes ownership of all of the big banks? This is the socialism McCain was trying to lay on Obama. Once Uncle Sugar owns the financial giants they own us.

[stupidrules3]

Another big corporation steps up to collect the government cheese. Paulson should be charged with treason. Shame on everyone who re-elected any of the scum who voted for this bailout. They have gone against the wishes of the American people because they are so much "smarter" than we are. When will we get smart enough to take Washington back from these crooks?

[oneworldusa]

And Citi thought it could buy Wachovia?? What? I haven''t seen any news of credit unions crashing and burning NOR receiving bailouts. Hmmmm.

[perk235]

As part of the plan, Treasury and the FDIC will guarantee against the "possibility of unusually large losses" on up to $306 billion of risky loans and securities backed by commercial and residential mortgages.
From article
--------------------
Think the FDIC will have money left over to insure regular folks accounts? I think not.

[pirmin3]

"See if I get this straight these people have DEGREES in what cooking?"

I worked for a company once that had a CFO that couldn''t balance a check book but he had an MBA. Scary stuff. Yes, he did get canned after about 6 months.

[shanev137]

Posted by airboatboy1 at 04:54 AM : Nov 24, 2008

Of course not.

Only lifelong Skull and Bones members are benefiting from the $750 billion dollar bailout.

[perk235]

%u201CDerivatives are financial weapons of mass destruction......"

-----Warren Buffet

Looks like Bush was looking in the wrong country for the weapons of mass destruction all along.

[perk235]

%u201CDerivatives are financial weapons of mass destruction%u2026time bombs, both for the parties that deal in them and the economic system. The macro picture is dangerous and getting more so%u2026%u201D

%u2014Warren Buffett

Looks like the financial sage was right again. Citibank has 37.1 trillion in risky bets (derivatives), with 3.6 trillion in credit default swaps.

Way to go to the overpriced cowboys of the financial industries!

[airboatboy1]

I''m curious about something. Doe''s anyone out there personally know 1 business or person that has benefited from or is going to because of these bail outs?

[whitewolf60]

MORE CORPORATE WELFARE.... ( I would make sure they paid it back! )

[shanev137]

They should have just let it crumble and be devoured by the last 3 banks in America.

[neoconrcrazy]

a some point (now!) the question should be asked;

are we aiming just to save the financial system? to respect all those faulty contracts that tie the system together? if so, it would seem good money is being thrown after bad money.

and after saving the financial system what guarantee do we have that those institutions will "re-pay" the main street economy with fair credits? or will they then just sit on their newly cash infused balance sheets and wait until the real sacrifices are made by you and me?

Once again, the banking industry (grrrrrr) has kissed that special spot on congress'' a$$ to make them c r a p more money.