U.S. rescues giant Citigroup
Reporting from Washington — The federal government rushed to the aid of faltering banking giant Citigroup Inc. late Sunday night, agreeing to invest $20 billion more and accept the lion's share of losses on more than $300 billion worth of the firm's troubled mortgage-backed assets.
In the largest single rescue effort thus far in the current financial crisis, the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. will shoulder 90% of the losses on most of a $306-billion portfolio of toxic mortgages and related securities.
The company will cover the first $36 billion of losses, but beyond that will see its risk of loss shrink drastically.
In return for the protection and aid, Citigroup will grant Washington nearly $30 billion of preferred shares and warrants. The firm will give the government sweeping powers over its operations, allowing it to effectively prohibit stock dividends for the next three years and pass judgment on all executive pay packages.
And the company will agree to try to modify mortgages in the huge portfolio, using standards designed by the FDIC after the collapse of IndyMac Bank in Pasadena to keep as many homeowners as possible in their houses.
Washington acted after Citigroup became the latest -- and largest -- financial institution to see a sell-off of its stock. The New York company lost 60% of its value in Wall Street trading last week and nearly 90% since the start of the year.
The company is one of the best-known banking operations in the world with nearly $2.2 trillion in assets and more than 200 million customers in 106 countries.
Citigroup already has received $25 billion from Treasury as part of the department's $700-billion financial rescue scheme. In return, Washington received an ownership stake in the firm. The $20-billion investment also comes from the department's Troubled Asset Relief Program.
"This weekend, the U.S. government and Citi worked together in an unprecedented way to address market confidence and the recent decline in Citi's stock price," said Chief Executive Vikram S. Pandit. "We appreciate the tremendous effort by the government to assure market stability."
Government officials, briefing reporters late Sunday, made clear they believed that permitting any further trouble at Citigroup could shake investor and depositor confidence in the global financial system and dramatically deepen what already is the country's worst financial crisis since the Great Depression.
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