'Repair and Recovery': U.S. Bold Plan to Rescue Citigroup

Nov. 24, 2008— -- The federal government and Citigroup announced an extensive plan late Sunday night to rescue the struggling financial giant with $306 billion in loan and securities guarantees and a new $20 billion stake in the troubled firm.

In exchange for the government's backing, Citigroup will provide the government an additional $7 billion in preferred stock, will abide by "enhanced" restrictions on executive compensation and will implement the Federal Deposit Insurance Corporation's mortgage modification program.

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The action, announced just before midnight Sunday by the Treasury Department, the FDIC and the Federal Reserve Board, is aimed at restoring confidence in a mammoth firm whose downfall would devastate the already crippled financial system and the American economy.

"With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy," the three agencies said in a statement issued late Sunday night. "We will continue to use all of our resources to preserve the strength of our banking institutions, and promote the process of repair and recovery and to manage risks."

The rescue plan was announced after marathon weekend negotiations 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 Obama as his Treasury chief, also participated.

The bank, which has at least $2 trillion in assets, has been widely regarded as "too big to fail."

The company boasts more than 300,000 employees and 200 million customer accounts through more than a dozen brands. The nearly 200-year history of the company's purchases and mergers includes literally hundreds of businesses that eventually bowed below the Citi umbrella. (Citi last month tried to add another business to its roster -- Wachovia bank -- but Wells Fargo acquired the firm instead.)

"The ramifications," said William Fitzpatrick, an equity analyst at Optique Capital Management in Milwaukee, "would be too far-fetched and too damaging for our financial system for an organization of their size to fail."

Citi's size hasn't insulated it from the financial crisis. In fact, many argue that it made Citi's troubles worse.