US government agrees to rescue Citigroup
24/11/2008 17:15
The US government agreed yesterday to rescue Citigroup providing a package
of guarantees, liquidity access and capital.
The US government would protect
US$306 billion of loans and securities on Citigroup Inc.'s books against losses
and inject US$20 billion into the bank from the Treasury's US$700-billion
Troubled Asset Relief Program.
In a joint statement released late last night,
the US Treasury, the Federal Reserve and Federal Deposit Insurance Corp (FDIC)
committed to supporting financial market stability, which is a prerequisite to
restoring vigorous economic growth.
"As part of the agreement, Treasury and
the Federal Deposit Insurance Corporation will provide protection against the
possibility of unusually large losses on an asset pool of approximately US$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," said the
statement.
As a fee for the arrangement, Citigroup will issue preferred
shares to the Treasury and FDIC.
In addition, the Federal Reserve stands
ready to backstop residual risk in the asset pool through a non-recourse
loan.
In exchange for the government's US$20-billion injection, Citigroup
would offer preferred stock with an 8 percent dividend to the
Treasury.
According to the agreement, Citigroup will comply with enhanced
executive compensation restrictions and implement the FDIC's mortgage
modification program.
"With these transactions, the US government is taking
the actions necessary to strengthen the financial system and protect US
taxpayers and the US economy," added the statement.
Citigroup lost 60 percent
of its market value last week as investors worried the risky debt on Citigroup's
balance sheet will turn into losses.
Xinhua
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