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.

[irreverent1-2009]

The only way for the common man and woman to fight back against this crummy deal is don''t buy, don''t borrow.

[lady_organs]

I am so glad the government has done this. It is holy, righteous and filled with purity. The white blue eyed blonde haired baby Jesus smiles fondly upon Citigroup this morning.

[Gary Kempf]

Citigroup currently more than 4,000 employees in the Philippines. The planned additional call centers mostly deal with overseas customers.

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

Gee, Hands out to the Fed for bail out money, lay off Americans and hire more Philippians''s. I say let them fall.....

[antoniof123]

Call your congress rep make certain they at least try to get some kind of controls on this.

The administration promised us they would handle it and we had to agree to tax breaks so the GOP would vote for this.

Do not forget next election. I am sick and tired of tax breaks for the rich and we the true tax payers pick up this tab.

No more welfare for the rich.

Call and let your voice be herad.

[docpeter1953]

I am so glad the government has done this. It is holy, righteous and filled with purity. The white blue eyed blonde haired baby Jesus smiles fondly upon Citigroup this morning.

Posted by Lady_Organs at 08:35 AM : Nov 24, 2008
_______________

ANOTHER NEW NAME GOP! How many is this so far? GOP_Will_WIn, GOP_4ever, GOPpaidschill, gophockeymom. etc. At least I can see you are inventive.

Still, I can recongize the troll you are by your foot prints.

[tidho1]

Congratulations to Citi from the soon to be displaced NCC workers and the City of Cleveland.

Its great to see that even though the 9th largest bank in the country is thrown to the wolves because they weren''t ''healthy enough to get TARP money'' (despite ratios to the contrary) that the funds available to Citi are nearly limitless.

[lady_organs]

ANOTHER NEW NAME GOP! How many is this so far? GOP_Will_WIn, GOP_4ever, GOPpaidschill, gophockeymom. etc. At least I can see you are inventive.

Still, I can recongize the troll you are by your foot prints.


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Posted by docpeter1953
==========================
I was not GOPpaidschill. Apparantly your tracking skills are not up to snuff.

[GooseFraba]

Mr. Obama, please sir, please set some sort of boundary and tell these companies here''s the money but going forward you can only charge customers (ex. 7%) on their cards and if the customer has a financial challenge that causes heart burn for them, they can only raise rates to 9%. Charging customers 20%, 25% and up, (at will I might add) is what''s strangling us.

[sidekick2008-2009]

Pathetic ! It''s obvious the jewish banks are strangling the Americans by their necks. The jewish banks control America, not President Bush nor Obama.

[sidekick2008-2009]

Pathetic ! It''s obvious the jewish banks are strangling the Americans by their necks. The jewish banks control America, not President Bush nor Obama.

[sidekick2008-2009]

Pathetic ! It''s obvious the jewish banks are strangling the Americans by their necks. The jewish banks control America, not President Bush nor Obama.

[sidekick2008-2009]

Pathetic ! It''s obvious the jewish banks are strangling the Americans by their necks. The jewish banks control America, not President Bush nor Obama.

[jtdev1]

The great american rip-off...

Have to protect those foriegn investors at all costs...


I''d love to see who exactly received all that bailout money. I bet 99% of them are foriegn.

[jt_lancer]

Taxpayer gets screwed again.

Enough is enough! I declare a Taxpayer STRIKE! REFUSE to pay your taxes on April 15! STOP the thievery!

[jtdev1]

Since Citi is a "Global" company, why then can''t other governments help in the "Bailout" ???

[sidekick2008-2009]

Pathetic ! It''s obvious the jewish banks are strangling the Americans by their necks. The jewish banks control America, not President Bush nor Obama.

[afmca]

Bush and his cronies keep throwing money to the big financial institutions but keep insisting their is nothing for GM, Ford, and Chrysler. Bail out their rich friends, but let good. middle class jobs disappear .. disgusting!

I''d like to be "important" so I could get some help with my finances. I must not be deep enough in debt.

[sidekick2008-2009]

Pathetic ! It''s obvious the jewish banks are strangling the Americans by their necks. The jewish banks control America, not President Bush nor Obama.

[sidekick2008-2009]

Pathetic ! It''s obvious the jewish banks are strangling the Americans by their necks. The jewish banks control America, not President Bush nor Obama.

[sidekick2008-2009]

Pathetic ! It''s obvious the jewish banks are strangling the Americans by their necks. The jewish banks control America, not President Bush nor Obama.

[darnedsocks]

ER, COULD THEY HAVE "RESCUED" THIS STUPID BANK "BEFORE" THEY LAID OFF 10,000 PEOPLE? AGAIN, WHO EXACTLY IS BEING "RESCUED" HERE?

[sidekick2008-2009]

Pathetic ! It''s obvious the jewish banks are strangling the Americans by their necks. The jewish banks control America, not President Bush nor Obama.

[imavoter2]

Let''s get this straight...
Our Government BAILS OUT CITI with MY TAXPAYER DOLLARS...
That''s MINE AND YOUR DOLLARS...Then CITI RAISES THE INTEREST RATE AND MINIMUM PAYMENT on MY CREDIT CARD ACCOUNT!!! WHO''S GETTING THE SHORT END OF THE STICK HERE? AIN''T CITI BANK!!!! WHERE''S MY BAIL OUT?????

[sidekick2008-2009]

Pathetic ! It''s obvious the jewish banks are strangling the Americans by their necks. The jewish banks control America, not President Bush nor Obama.

WHERE''''S MY BAIL OUT?????


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Posted by IMaVOTER2 at 09:44 AM : Nov 24, 2008

You don''t get one for a number of reasons:
it''s called personal responsibility, Corporations are not personal.

You don''t need on you haven''t lost billions.

You''re not one of Bush''s friends

Short end of the stick? You should be happy that you invested, saw it all blow away and get to pay for it too.

Your taxpayer dollars? Haven''t you figured out that once you spend or have taken away from you it''s not your money anymore?

Your loan went up and CC payment went up? Well who''s fault is that? Yours, once again it''s that personal responsibility thing.


The wonderful world of 8 years Republican rule is coming home to roost. All hail George Bush the fool!

[oscarez]

Citigroup has more than $2 trillion in assets with more than 1 trillion in bad paper. This is just a short term stopgap that cannot save the company. After the 1929 crash it took two years for the real damage to show up in most of the U.S. economy. I believe that we will see a 5500 Dow by the end of 2009. There is a huge shortage of hard currency and until this shortage ends we will not see a stable U.S. economy.

[sidekick2008-2009]

Pathetic ! It''s obvious the jewish banks are strangling the Americans by their necks. The jewish banks control America, not President Bush nor Obama.

[donevis-2009]

The pathetic part of this "sweet Deal" is Citi Corp was one of the Credit Card Co''s charging loan shark rates to their card holders. When we see 27% or so being shoved up our accounts on their whims, it makes it really aggravating to know that we now have to give them money because "they don''t have enough". I read where the CEO of AIG gave his wife 42.4 million of our money in stock. The American tax payer is getting shafted and it''s becoming more and more apparent we''re being robbed by every Co. CEO that puts their hand out. My Credit card payments will be the first thing I stop as this mess gets worse as it''s bound to do. What are they going to do ruin my credit rating? Who cares now at least It''ll be able to balance out from the money they''ll be taking from me. All this will find a breaking point somewhere along the line and the elite will wonder what all the riots are about. Demonstrations in 27 city''s this weekend about these illegal payouts without a mention of it on mass media news. Oh but we did find out where Obama''s children will be going to school.

[kuei12]

WOW looks like the bigwigs a citibank will get a great holiday vacation. Too, bad the government had to steal billions from banks like WAMU and the american people to do it. It''s just gonna happen again. These bankers got a huge reward for bad business at our expense. And looky here. This is the 2nd bailout for citibank. Where is the benefit of doing honest business? And they still are not helping the american people. If you invest in financial stocks you will lose all your money. Aske the shareholders of WAMU how the government robbed them point blank.

[imavoter2]

I PAY MY BILLS ON TIME AND THEN GET IT STRAIGHT WHERE THE SUN DON''T SHINE! CITI BANK STICKS IT TO EVERYONE, AND THEY GETS BILLIONS IN HELP WITHOUT EVEN HAVING TO SAY "I''M SORRY"!

WHAT A SYSTEM, WHAT A COUNTRY!

[sepa2]

"The government plan also guarantees up to $306 billion in risky loans."
Is any of these loans given to enterprenuars who are in green energy or otherwise try new ideas that will in future generate new technologies and new jobs and new wealth? If that is the case I do not have any problem giving them Tax money.

[jtdev1]

" why doesn''''t the government just give everybody a million dollars -- like to every taxpayer/citizen? That would total about $300 million or so "

Posted by imprisonrove at 10:04 AM : Nov 24, 2008

_________________________________________________


Your so stupid! Who are you? Joe the Plumber, Liar, Tax Evador????


Do the math:

US Population: 305,731,172

so take that population and multiply it by 1,000,000 and see what you get...

HINT: a lot more than 300 million.....


(I realize your not smart enough to do the math so here''s the answer: $305,731,172,000,000)


But if you do give everyone $1.00 then it will be 300 million (or so)...

[sensiblejack]

Ask yourself how the incompent clowns at Citi who brought themselves to this sad state of affairs will get to remain at the helm after the bailout.

The Answer we will undoubtedly get is that it isn''t Citi''s fault but they are a victim of this whole Credit mess.

Would you give 20 Billion dollars to a company that has demonstarted it is incapable of managing its own affairs???

Would Bush? Would Obama?

Answer is NOOOOOOO

But Taxpayer Money..well now another stroy all together a few billion gere a few billion there...its all neccessary !!!!

Let get a few Billion over to those idiots in Detroit while we are at it.

My uncle Ernie ran his dry cleaners into the ground with some bad choices lets bail him out too.

I understand the too big too fail concept, but without fundamental change you can''t commit new money to the hands of idiots who have all but proven that they don''t understand their environments, the Global marketplace and simply assume the outcome will be different.

Hope is NOT A PLAN

[macusweil]

"Pathetic ! ... Posted by sidekick2008 "

Racist remark posted by someone with obviously little education or understanding of economics.

[sidekick2008-2009]

Pathetic ! ... Posted by sidekick2008 "

Racist remark posted by someone with obviously little education or understanding of economics.

Not rascist you moron, these are facts. Go do your own research. All the major banks are jewish owned including Federal Reserves. The Government borrow money from these banks and pay back with interests. My god, are you an American? You dont know whats happening in your own country?




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Posted by macusweil at 10:26 AM : Nov 24, 2008
+ report abuse

[tejasdemo]

And the rich get richer

[doug5231]

Relax everyone! All of this bailout stuff, who''s going to bailout our government(throwing not so good $$$ after really bad $$$). When the dust clears, the Pacific rim countries and Europe will be sitting pretty. Most Americans will be scratching to make next mnths mortgage payment and going to Wendies to order something off the $$$ menu.

[jydavis1]

Geithner, Summers, Bernanke, Volker, Greenspan et al .. yes, the jewish financial elite (our real masters) will protect their own at the expense of the American working middle class - enjoy your gentile slavery America, you are being robbed - history is repeating itself.. did I hear "Change" ?

[doug5231]

Wendy''s...sorry

[sidekick2008-2009]

Geithner, Summers, Bernanke, Volker, Greenspan et al .. yes, the jewish financial elite (our real masters) will protect their own at the expense of the American working middle class - enjoy your gentile slavery America, you are being robbed - history is repeating itself.. did I hear "Change" ?

And Bernanke has a contract that expires only in 2020, and so are many other top jewish people. When they retires of course only jews will take over. The leader of them all is the Rothschild family.

[jd_heath]

I am really getting tired of the "Too big to fail" label being placed on various companies as a bail out excuse. How does that happen? Seems to me we need some upgraded anti trust laws that will keep companies from amassing the type of power and financial clout to be able to take the enconomy into the toilet if they fail.

[sensiblejack]

here is how it breaks out

Idiots ( Govt) Throw our Money at other idiots, while the collective "We", sit back and lament how this is all really to complex to understand and we really need these ''learned'' men and women to step in.

If your friend went to a casino and gambled away the mortgage payment , would you honestly give him more money.

These people are not stupid, they gambled with money that was not theirs...they lost and now they are crying that they are too big to fail.

We should take a page from China''s book. Bail em out but lets start with a few dozen public executions first

[doug5231]

Relax everyone! All of this bailout stuff, who''''s going to bailout our government(throwing not so good $$$ after really bad $$$). When the dust clears, the Pacific rim countries and Europe will be sitting pretty. Most Americans will be scratching to make next mnths mortgage payment and going to Wendy''s to order something off the $$$ menu.

[deathofusa]

I realize your not smart enough ....
Posted by jtdev1 at 10:14 AM : Nov 24, 2008


You don''t sound too smart either. Did you mean "I realize you''re not smart..."

[donevis-2009]

Hey side kick, give your computer a smack on the side. It''s skipping like an old turn Table. Might need to change the needle. Probably still available in Israel.

[steamed2]

Who''s government are we talking about here, not ''we the people'' that''s for sure! This is Henry Paulson''s private bailout of favorite companies funded by taxpayer money. He''s not trying to minimize damage to the economy, he''s trying to prevent the collapse of specific companies like Citigroup, A.I.G., and his own Goldman Sachs who''s failure could bring out their 52 trillion dollars in Credit Default Swaps (and 300 trillion in other derivative instruments) that should have been illegal in the first place. Congress is apparently staffed by the galactically stupid! For some interesting info, check out http://www.peak.org/~LW584

[prometheus41]

"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."

It''s the SAME argument over and over. The media plying it''s propaganda, hardly looking for someone in the financial terrorist sector to say we have to do this, it will only be worse if we don''t, while taxpayer dollars, not on the order of MILLIONS, but MILLIONS of MILLIONS to feed these parasites... more and more... over and OVER. To serve the parasite sector in our parasite economy is the greatest of honors. Not socialism for the benefit of all -- no, that is abhorrent. Feudalism HI-JACKED through the *** roof of a 10 TRILLION dollar debt and growing, SOCIALISM for the benefit of the rich and lazy ONLY, now that is the American way. There''s no reason for the rich and lazy to suffer... ever. THIS is the AMERICAN DREAM.

The freedom. The liberty. So... FREE... FREE like the our founding fathers could never have forseen. And justice for all. God Bless America.

[sidekick2008-2009]

I wonder why American don''t demonstrate against these bailouts like they do against the wars, gay-rights etc etc

[walt1944-2009]

ONCE AGAIN, the "3 stooges" of the government, those being the Great Emperor Bush II, "Fuzzy Face" Bernanke (the HEAD of the FED!), and "Old Baldy" Paulson (the HEAD of the TRES!) have teamed up to "rescue" a mega-bank and insure that the highly-paid, highly-perked, totally-GREEEEDY, and absolutely-stupid executives fa Citibank can continue to enjoy the "American Dream" while every taxpayer out there together with their future generations will be living the "AMERICAN NIGHTMARE!"!!!!!

As is the usual case when the "3 stooges" of the government get involved, the additional taxpayer money handed over to the ultimately-GREEEDY executives of Citibank, will have ABSOLUTELY NO oversight, accountability, or other strings attached to it, and if there are any, NO ONE will enforce them anyway!!!

So, with only 2 months to go before the Great Emperor Bush II finally vacates the "THRONE" in the Oval Office (we all hope!), The Great Emperor is continuing full-tilt with his plans to BANKRUPT the USSA and give every living and future taxpayer THE SHAFT!!!!!

SIG HEIL, I''M THE GREATEST CON MAN WHO EVER LIVED!!!, BUSH!!!