US Treasury pours another $20b for saving Citi
Tuesday, 25 November 2008
The federal government stepped in Sunday night to bail out Citigroup, promising to protect the bank against losses on hundreds of billions of dollars worth of troubled assets.
After a week in which Citi's shares plummeted 60 per cent amid mounting concerns about its future, the US Treasury and the Federal Deposit Insurance Corporation 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, which will remain on Citigroup's balance sheet.
The Treasury will also invest another $20 billion in Citigroup through the Troubled Asset Relief Programme (TARP), receiving preferring stock that will yield 8 per cent.
Citigroup has spent the year scrambling to shore up its capital as it racked up tens of billions in losses on mortgage-related assets held on its balance sheet.
It is 35 per cent of the way through a plan to shed $500 billion in unwanted assets, but its balance sheet is still bloated at $2 trillion, and it has another $1 trillion or more in potentially worrisome assets held off its balance sheet.
It raised $50 billion in fresh capital this year from outside investors, including Saudi Arabia's Prince Alwaleed Bin Talal, who said just last week he would raise his stake in the company to 5 per cent from just under 4%. Citi got another $25 billion of capital from the TARP capital purchase plan.
A failed deal in October depressed investors' already low confidence in the bank. It arranged a deal to buy Wachovia that would have involved moving troubled assets off the combined company's balance sheet with the assistance of the Federal Deposit Insurance Corp.
After a week in which Citi's shares plummeted 60 per cent amid mounting concerns about its future, the US Treasury and the Federal Deposit Insurance Corporation 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, which will remain on Citigroup's balance sheet.
The Treasury will also invest another $20 billion in Citigroup through the Troubled Asset Relief Programme (TARP), receiving preferring stock that will yield 8 per cent.
Citigroup has spent the year scrambling to shore up its capital as it racked up tens of billions in losses on mortgage-related assets held on its balance sheet.
It is 35 per cent of the way through a plan to shed $500 billion in unwanted assets, but its balance sheet is still bloated at $2 trillion, and it has another $1 trillion or more in potentially worrisome assets held off its balance sheet.
It raised $50 billion in fresh capital this year from outside investors, including Saudi Arabia's Prince Alwaleed Bin Talal, who said just last week he would raise his stake in the company to 5 per cent from just under 4%. Citi got another $25 billion of capital from the TARP capital purchase plan.
A failed deal in October depressed investors' already low confidence in the bank. It arranged a deal to buy Wachovia that would have involved moving troubled assets off the combined company's balance sheet with the assistance of the Federal Deposit Insurance Corp.