US government bails out Citigroup

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WASHINGTON, DC - The US government stepped in on November 23 to save US bank Citigroup with a bail-out package worth more than $320 billion.

Under the agreement, the Treasury and the Federal Deposit Insurance Corporation (FDIC) "will provide protection against the possibility of unusually large losses on an asset pool of approximately $306 billion of loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup's balance sheet".

As a fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. The Federal Reserve also stands ready to backstop residual risk in the asset pool through a non-recourse loan if required.

In addition, Citigroup will receive $20 billion in fresh capital under the Treasury's Troubled Assets Relief Programme, in exchange for preferred stock that gives the department an 8% dividend. The bank will be required to comply with executive compensation restrictions and implement the FDIC's mortgage modification programme.

"With these transactions, the US government is taking the actions necessary to strengthen the financial system and protect US taxpayers and the US economy. We will continue to use all our resources to preserve the strength of our banking institutions, promote the process of repair and recovery, and manage risks," said the Treasury and the FDIC in a joint statement.