Government unveils plan to rescue Citigroup

ByABC News
November 25, 2008, 9:48 AM

WASHINGTON -- Federal regulators late Sunday agreed to backstop about $306 billion of Citicorp's riskiest assets to bolster the staggering banking giant, in yet another in a growing list of radical efforts to shore up confidence in troubled financial markets.

In addition, the Treasury Department will inject another $20 billion into Citigroup, in exchange for preferred stock, with the money coming from the recently approved $700 billion Troubled Asset Relief Program. The government has previously invested $25 billion into Citigroup under the program.

The federal guarantees will be in place for 10 years for residential assets, and five years for the other securities. To further protect taxpayers, Citigroup will absorb all losses in the portfolio up to $29 billion, in addition to existing reserves it is required to hold against the pool of assets. Losses beyond that amount will first be shared by the Treasury and the FDIC, with the Fed backing the remaining large pool of assets, officials said.

The Citigroup rescue came after a weekend of marathon discussions led by Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke. Timothy Geithner, president of the Federal Reserve Bank of New York, who is being tapped by President-elect Barack Obama as his Treasury chief, also participated.

Vikram Pandit, Citi's chief executive officer, welcomed the action. "We appreciate the tremendous effort by the government to assure market stability," he said in a statement issued early Monday.

Citigroup is such a large, interconnected player in the global financial system that it is seen by Washington policymakers as too big to fail. The company has operations around the globe in more than 100 countries.