Citibank's "Sweet Deal" From Government

Struggling Bank Gets $20B Lifeline, $306B In Loan Guarantees; Bush: More Bailouts Possible

(CBS/AP)  The U.S. government unveiled a $20 billion rescue plan on Sunday for troubled banking giant Citigroup, once the country's biggest and strongest financial institution.

The action, announced jointly by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. after a weekend of tense negotiations, 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.

President George W. Bush said Monday he consulted with President-elect Barack Obama on the Citigroup rescue. Mr. Bush said there is "close cooperation" between his administration and the Obama camp.

Mr. Bush, speaking outside the Treasury Department after consulting with Secretary Henry Paulson, also said the measures used to help Citigroup could be extended to other institutions in need of federal assistance.

"We have made these kind of decisions in the past. We made one last night and if need be we will make these kind of decisions to safeguard our financial system in the future."

In addition to an investment of $20 billion in Citigroup, the government plan also guarantees up to $306 billion in risky loans. This is on top of the $25 billion the government has already pumped into Citigroup.

The money will come in exchange for shares that will pay eight percent back to the taxpayer; Citigroup also agrees to place limits on executive pay and help homeowners facing foreclosure, reports CBS News correspondent Kelly Wallace. But some analysts say the bailout doesn't go far enough - and that the company will need much more from Uncle Sam.

"The $20 billion is about 10 percent of what Citicorp needs to get back to financial health," said Sean Egan of Egan-Jones Ratings Company. "They need about 200 billion, they got 20."

Still, some experts said the government's action was necessary.

"If Citigroup had not been bailed out, then the whole financial system could collapse," said Princeton economics professor Paul Krugman on CBS' The Early Show.

But is the government bailout of Citigroup well-structured, and are taxpayers getting a fair deal here?

Krugman, author of "The Return of Depression Economics and the Crisis of 2008" (Norton), says on first read, no.

"Most of the people who have looked at it, the small hours of this morning, have said this is a lot of taxpayer risk in return for not much," Krugman told co-anchor Maggie Rodriguez.

"It looks like a very sweet deal for Citigroup management, very sweet deal for Citigroup shareholders, to the extent they have anything left - not very good for the taxpayer. This was not good."

With other bailouts seemingly having done nothing to boost consumer confidence, Rodriguez asked, why do it if it is not well-structured?

"Well, you know, things could be worse, you know? That's been the moral of this crisis: things can always be worse,' Krugman said, "and they have been getting worse.

"Things could be much worse than they are. It's what hasn't happened, not what has, is the justification. We had to do this, but we should have done it better."

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.

In exchange for the guarantees, the government will get $7 billion in preferred shares of Citigroup. In addition, Citi said it will issue warrants to the U.S. Treasury and the FDIC for approximately 254 million shares of the company's common stock at a strike price of $10.61.

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 bank is currently paying a dividend of 16 cents, halved from a 32-cent payout in the previous quarter. The agreement also places restrictions on executive compensation, including bonuses.

Importantly, the agreement calls on Citigroup to take steps to help distressed homeowners. Specifically, Citigroup will modify mortgages to help people avoid foreclosure along the lines of an FDIC plan that was put into effect at IndyMac Bank, a major failed savings and loan based in Pasadena, Calif.

Under the IndyMac plan, struggling home borrowers pay interest rates of about three percent for five years. Rates are reduced so that borrowers aren't paying more than 38 percent of their pretax income on housing.

The IndyMac plan also was used as a model for a new program by mortgage finance companies Fannie Mae and Freddie Mac and for two other failed thrifts taken over by the government on Friday. FDIC Chairman Sheila Bair has been pressing Treasury to use $24 billion from the $700 billion bailout program to put the mortgage modification program on national footing, but Paulson is opposed to that idea.

Overseas Markets, Wall Street Respond

Wall Street showed relief early Monday over the government's plan to bail out Citigroup - a move it hopes will help address some of the uncertainty hounding the financial sector. Stock index futures contracts indicated the market was poised to extend a sharp rally from Friday.

Investors also cheered the idea that the government could introduce another economic stimulus plan. President-elect Obama is set to introduce his economic team on Monday, which is key to putting into place a huge economic recovery plan that targets saving or creating 2.5 million jobs during the next two years.

Krugman said that the announcement that Obama has picked New York Federal Reserve president Tim Geithner as his Treasury Secretary and Lawrence Summers to head the White House National Economic Council (whom he described as "terrifically smart and terrifically forceful guys") is good news.

"Great to have the best people on board," Krugman told Rodriguez. "This is the one thing really encouraging right now."

In a relief rally over the government's plan to bail out Citigroup, Wall Street barreled higher for the second straight session. The Dow Jones industrials soared nearly 390 points, bringing their two-day advance to more than 880, or 11 percent.

Asia breathed a little easier after the U.S. government cast a lifeline to Citigroup, averting what many believed would have been a catastrophe for the global financial system.

Yet shares of financial companies dropped across the region as the bailout, widely expected by investors given Citigroup's size and scope, highlighted persistent worries about the problems facing the banking sector.

Critics said the bailout creates a moral hazard that will eventually backfire because it effectively rewards the bank for taking unacceptable business risks.

"This challenges the existing rules in the industry and might affect the fairness of competition," said Yu Xiaoyi, chief researcher for Guangfa Securities, in the Chinese southern city of Guangzhou. "This should be a lesson for China's own banks about risk controls."

But many welcomed the deal as saving the global financial system, already stricken by the year-old credit crunch that originated from a mountain of toxic mortgages in the U.S., from further mayhem.

"If they didn't help, the damage would be beyond imagination," said Teck-Kin Suan, economist at United Overseas Bank in Singapore. "The scale is so much larger than Lehman Brothers," the storied Wall Street investment bank that filed for Chapter 11 bankruptcy protection in September after the U.S. government refused to rescue it.

"One thing that makes this time particularly difficult is that the financial system is broken," Mark Zandi of Moody's economy.com told CBS News."It's now increasingly difficult to get credit, whether you are someone with a good credit score or a business with a pristine balance sheet. That's going to make this particular recession, particularly severe."

Some are hoping this week at least will be somewhat calm, because there are not a lot of big economic numbers being released, and it's a short trading week because of the Thanksgiving holiday.

Meanwhile, Citigroup Hires … In The Philippines

Citigroup may be cutting jobs worldwide, but it is hiring more workers in the Philippines, where it plans to establish a regional hub for its call centers, company officials said Monday.

"Citi is repositioning in Asia Pacific but we remain focused on growth," country business manager Mark Jones said in a statement.

"As we review our operations and see where we can be more efficient, something which we have been doing even before the downtrend in the global financial markets, we in the Philippines are optimistic that instead of reducing headcount, we will be growing," he added.

He did not elaborate on the number of expected new jobs to be created. Citigroup currently more than 4,000 employees in the Philippines. The planned additional call centers mostly deal with overseas customers.

The Philippine Daily Inquirer quoted Jones as saying the company would likely hire 1,000 more people in the coming year. This could not immediately be confirmed independently.

Last week, Citigroup Chief Executive Vikram Pandit announced 50,000 additional job cuts on top of 22,000 cuts previously announced.

[garymwal]

OK...we bail out Wall Street, the auto makers, CITIBANK...etc and I as a tax payer was thanked last week with a letter from CITIBANK informing me that although I HAVE NEVER BEEN LATE on a payment, they were raising my rate from 8.99 to 24.99 % since their costs of doing busineess are higher!?!?!?

They assured me when I called that they were within thier legal rights since this possibility was in the fine print when I accepted their initial offer...WHO WILL BAIL MYSELF AND OTHERS OUT WHEN WE CANNOT AFFORD OUR PAYMENTS????? WE NEED CHANGE regarding credit card companies!!! Gary W.

[laurie555]

Citigroup is being bailed out! The govermment wants to make credit more available for consumers to use. Yet, I just receive a letter from Citibank.....they are raising their finance charge rates to 14.99%. Yea, that will make me want to buy...get real! I have excellent credit, make payments on time, and they are doing just the opposite of what the govement wants! Go figure!
laurie

[agobbler]

"Importantly, the agreement calls on Citigroup to take steps to help distressed homeowners. Specifically, Citigroup will modify mortgages to help people avoid foreclosure along the lines of an FDIC plan that was put into effect at IndyMac Bank"

Oh, really? I was served a foreclose notice yesterday from these people. I have until Christmas Eve to vacate. I tried to get them to work with me but never got a single response from them. I''m not crying about it, I''ve survived before and will this time. But I am sending photographs of the two handicapped children I''m responsible for to Citigroup. Have a Happy Thanksgiving and a Merry Christmas.

[mytoosense]

Citibank, the number one credit card crooks in the world and they get a bail out so they can continue making and collecting credit card loans that would make a loan shark smile.

Nice...

Well Citibank, you haven''t and you won''t get a cent from me.

[olderthnadam]

If we had allowed these big investment banks to stand on their own many would have failed but those banks that played it safe over the last decade would have had their chance to make big money by buying up the pieces dirt cheap. Not to mention that we would already be on the road to recovery instead of worrying who the next bank to fail is going to be. I guarantee you big investors are looking for the next bank to drive the stock price down on right now. Who''''''''s next? We are so afraid of another Great Depression that we are doing everything in our power to cause one. The only difference is that instead of runs on retail banks we now have runs on investment banks. The purpose of the anti-trust legislation that we have thrown out the window in the last twenty eight years was to prevent companies from getting so big as to put the economy at risk all by themselves. One more failure of Reaganomics. We think the deficits of the last 8 years are big the deficits of the next 2 years are going to make them look like lunch money. One other question I have is if Citi is a worldwide corporation with 200 million accounts world wide then why are we alone expected to bail them out. Wall street exhausted it''s ability to steal from the poor and give to the rich so now the U.S. government is doing it for them.

[twood001]

ChloeMont,

You are an ignorant fool!! Obama was born in Hawaii. You cannot become President of the United States unless you are a US citizen. Get your facts straight you moron.

[grandesign]

"Importantly, the agreement calls on Citigroup to take steps to help distressed homeowners. Specifically, Citigroup will modify mortgages to help people avoid foreclosure along the lines of an FDIC plan that was put into effect at IndyMac Bank"

Now I understand better. Maybe this part of the deal is worthwhile.

[grandesign]

If Citibank is ''''too big to fail'''' then Citibank is too big, period. Antitrust...NOW.
Posted by ubrew12 at 11:29 PM : Nov 24, 2008


YEEESSSSSSSS. Why is this so hard for our government to figure out. They are breaking the law by extending support to a monopoly. Same thing for the Automobile companies that are too big to fail.

[ahrats]

Citigroup of course its a sweet deal, you get bailed-out, import cheap jobs overseas, and we the taxpayer gest screwed. How does anyone know that if this bank failed the economy would get worse, well already getting worse for most of us who do not own stock and do not work for the bailed out finaical institutions. The first thing I would like to see is all the corporate executives be fired for this mess, think of what money we could save there. How about giving the people the money instead of the banks and we will not need lones from these jerks.

[ubrew12]

Citibank and the other bailout queens say they didn''t see this coming.

Smartest business grads in the world?

Didn''t see it coming? Heck, they STEERED for it!

[ubrew12]

If Citibank is ''too big to fail'' then Citibank is too big, period. Antitrust...NOW.

I think Citibank could teach the pirates off Somalia a thing or two about their business.

[chloemontague]

whitemale08, Oh Boy! you''''re some dumb ***, HSBC is not British you muppet it''''s Chinese dumbwit!

HONG KONG and SHANGHI BANKING CORPORATION, get it HSBC. CRETIN.

Posted by drinuk at 11:10 PM : Nov 24, 2008

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

Dear ''drinuk''
I hate to tell you HSBC is BRITISH bank, set up in HKG in 1865, don''t you know the history of Honkers and China and the British Empire??? You are the CRETIN.

The people behind HSBC hold a Golden Key.
You might find a bit of Dutch in there!?!

[drinuk]

whitemale08, Oh Boy! you''re some dumb ***, HSBC is not British you muppet it''s Chinese dumbwit!

HONG KONG and SHANGHI BANKING CORPORATION, get it HSBC. CRETIN.

[chloemontague]

The sheeple are zombies... really it is not their fault, as they have been brainwashed.
This is video of a Sheep really believing Obama''s Hype... I guarantee you will be laughing in 30seconds
youtube[.]com/watch?v=1cbUlW5MMHE

Further proof of brainwashing with Obama''s Hitler Youth - youtube[.]com/watch?v=WqF19Phn0Og

[chloemontague]

The sheeple are zombies... really it is not their fault, as they have been brainwashed.
This is video of a Sheep really believing Obama''s Hype... I guarantee you will be laughing in 30seconds
youtube[.]com/watch?v=1cbUlW5MMHE

Further proof of brainwashing with Obama''s Hitler Youth - youtube[.]com/watch?v=WqF19Phn0Og

[chloemontague]

LIES LIES LIES
Rothschilds just posted a huge PROFIT.
Obama was born in Kenya and is not a Natural Born Citizen, nor is he Naturalized. This is the biggest joke and hoodwink since Hitler was bankrolled to carryout his plan........ we all know what happened there.

[chloemontague]

LIES LIES LIES
Rothschilds just posted a huge PROFIT.
Obama was born in Kenya and is not a Natural Born Citizen, nor is he Naturalized. This is the biggest joke and hoodwink since Hitler was bankrolled to carryout his plan........ we all know what happened there.

[whitemale08]

IT WON''T WORK!!!!!!

AND IT''S A WAY TO DESTROY WHAT''S LEFT OF AMERICAN FINANCIAL POWER-HOUSES SO THE BRITISH HSBC CAN BE LEFT STANDING ALONE!!!!!!!

HSBC HAS JUST CALLED FOR THE ''MONETIZATION'' OF OVER A QUADRILLION IN WORTHLESS DERIVATIVES WHICH KILL EVERY MAN WOMAN AND CHILD ON THIS PLANET!!!!!!!


THE BRITISH ARE COMING!!!!
THE BRITISH ARE COMING!!!!
THE BRITISH ARE COMING!!!!

WE MUST STOP THE BRITISH BANK HSBC!!!!!!!!1

[drinuk]

Skybluee22, Utter rubbish, the unregulated crooks with their million buck bonus''s got us into this mess. Corporate America have spent the last sixteen years selling every stick of furniture we owned, aided by hundreds of bent politicians and servants of the state. We have allowed our employee''s to do as they please and run this country into the dirt and when given the opportunity to address the problem we neither had the intelligence or the guts to root out the crooks.

[skyeblue22]

You people need to stop using this forum to sink your teeth into your political views of who is in power and who got elected and who didn''t and focus on the problem that is at hand. The government needs to help bail out the middle American who is suffering because of the big corporate conglomerates who are now (boo hoo)losing money because they gave out money to people who were not qualified and were giving overinflated appraisals on homes that allowed more money to be given out in equity that was not there......and we wonder why there are so many foreclosures. Wake up people.