by Frank James
Citigroup certainly has much to be thankful for this week since it's getting new and massive federal support to keep it solvent.
The rest of us, whether we know it or not, likely also have much to be thankful for since we can assume the response to a Citibank insolvency wouldn't be good.
Federal officials last night announced they will transfuse more money, $20 billion, into the wobbly banking giant, and also even more extraordinary, serve as backstop to up to $306 billion in toxic assets.
A joint statement issued by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. said:
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.
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 following principles guide our efforts:
Citigroup's the latest financial institution to be deemed too big to fail, which it probably true, especially when global economies are on life support.
An Associated Press story provides details of the plan:
As part of the plan, Treasury and the FDIC will guarantee against the "possibility of unusually large losses" on up to $306 billion of risky loans and securities backed by commercial and residential mortgages.
Under the loss-sharing arrangement, Citigroup Inc. will assume the first $29 billion in losses on the risky pool of assets. Beyond that amount, the government would absorb 90 percent of the remaining losses, and Citigroup 10 percent. Money from the $700 billion bailout and funds from the FDIC would cover the government's portion of potential losses. The Federal Reserve would finance the remaining assets with a loan to Citigroup.
In exchange for the guarantees, the government will get $7 billion in preferred shares of Citigroup.
As a condition of the rescue, Citigroup is barred from paying quarterly dividends to shareholders of more than 1 cent a share for three years unless the company obtains consent from the three federal agencies. The bank is currently paying a dividend of 16 cents, halved from a 32-cent payout in the previous quarter. The agreement also places restrictions on executive compensation, including bonuses.
Here's the official term sheet where AP got the information.
Comments
why could"t GM and all those blue collar jobs in diners, hospitals, repair shop, stores,etc. get saved?
YOU THINK CITI CORPS DOESN'T HAVE A FEW JETS?
Rahm Emmanuel is a Banker.
Maybe Shouting Phil is too?
Posted by: For chznge you can believ e in , vote Green Party next time | November 24, 2008 8:13 AM
So, does this mean, I am going to own a part of Citigroup?
Posted by: MonkeyBusiness | November 24, 2008 8:20 AM
Isn't this the same Citigroup that got into a snit because Wells Fargo got Wachovia without government assistance? Also, isn't $360 billion in toxic assets over half of the promised $700 billion total bailout? As usual, something here doesn't make sense.
Posted by: jack | November 24, 2008 9:06 AM
Isn't "toxic assets" just a polite way of saying "really, really messed up/bad loans and investments"? Call it what it is - an utter and complete failure by Citi to write good, high-quality paper.
As with the Big 3, I believe the government should bail out these institutions only after the entire level of senior management (i.e., "C"-level down to Senior VPs) has agreed to leave - withouth any type of payouts what so ever.
Underpinning these institutions, and their horrific management decision making, with taxpayer money sends a bad message. It basically says, "Go ahead and continue to run your business into the ground with bad decisions - we've got you covered."
Posted by: Wooly Bully | November 24, 2008 10:20 AM
Yes, I’d have to agree with the previous posters. Why is there a double standard in lending? GM has to show a business plan, and so should the bankers. Where is the outcry about their corporate jets? Where is the outcry over how much they pay their "workers". I'm willing that amount is much more than the GM line worker makes. Of course we will not here about it, as the pugs will stay silent. It was the bankers that got us into this mess with derivatives trading in the first place: http://www.marketwatch.com/news/story/derivatives-new-ticking-time-bomb/story.aspx?guid=%7BB9E54A5D-4796-4D0D-AC9E-D9124B59D436%7D The banking industry just can not be trusted with money, simple as that. It always ends up in their pockets.
Posted by: Xcellentform | November 24, 2008 10:34 AM
Where is this money coming from?
More debt? More printing paper money that has nothing behind it?
There is going to be an inflation whiplash that is going to completely negate the dollar.
Posted by: jim | November 24, 2008 10:56 AM
It is interesting how quickly these financial companies get bailed out so fast and without any questions. Yet the auto industry has to go under the microscope and answer to everybody.
Oh wait that's right it's the unions that are dragging down there industry. Shame on people for wanting to make a living. This should go only to the rich. You have to keep them fat and happy.
What a complete JOKE. Help the rich get richer. Well I certainly hope like the other big finance places, they go to some fancy resort and dump a half mill on themselves. Surely they are deserving.
Posted by: Andy | November 24, 2008 11:04 AM
PROGRESSIVES---TAKE NOTE! WATCH OBAMA AND PRESSURE HIM TO DO THE RIGHT THING FOR THE LITTLE PEOPLE!
WE WANT THE WAR ENDED!
WANT BLUE COLLAR JOBS BROUGHT BACK.
WHERE THE DICKENS IS HOWARD DEAN?
http://www.thenation.
com/blogs/edcut/385749
Posted by: thanks a LOT Moveon.org! | November 24, 2008 11:38 AM
Excuse me, but I could use a bailout too. I'm running a reprographics shop in Port Charlotte, Florida and I've done nothing but my best to keep business going and it's not enough. HELP!! I need 150,000.00 to get back on track. Oh sorry, I guess I'm not big enough to get any money, but the idiots and Citi that gave money to every tom, dick and harry are easily "let go" from their financial wows, this country is pathetic.
Posted by: BillyRollins | November 24, 2008 12:21 PM
So does this mean I own my own mortgage? How does that work? Do I stop paying them?
Posted by: lochnessmonster | November 24, 2008 12:21 PM
I'm not surprised that Citigroup needs bailing out: when I have gone into the bank, tellers and personal bankers have no concept of customer service.
Basically, WE are helping a company that should have folded a while ago.
Posted by: Stacey | November 24, 2008 12:44 PM
Ah CitiBank -- the folks who have been screwing countless people with high credit card rates that mysteriously increase and interest cycles that are shorter than the billing cycles so it's almost impossible to pay off the balance. Now they are going to be getting the tax money paid by the people they screwed so that they can stay in business and keep right on screwing them. Is this a great country or what?
Posted by: Elmo | November 24, 2008 12:58 PM
Quote from the article:
"...the government would absorb 90 percent of the remaining losses,"
Is this more socialism (and Obama's not in office).
Posted by: Bingo | November 24, 2008 1:11 PM
Maria Bartaromo just interviewed the Saudi prince who is the majority stock holder in Citi. He is obviously in favor of the US taxpayers bailing out the company! Nice to see our tax dollars helping out a "poor" Saudi prince.
Posted by: Reality | November 24, 2008 1:26 PM
Somethings fishy here? Just days ago, we saw a story line that suggested that Citibank was in trouble because of something like $30B in toxic mortgage debt. We already heard Paulson saying the government was not going to buy up these assets under TARP. That made a lot of sense to be since they are worth nothing. Now we find out that Citi is getting guarantees of BILLIONS more against future losses due to toxic debt. Where's this coming from? The feds need to make sure our banks stay solvent. Thats a given. What they don't need to do is guarantee that citi will not have to downsize and get smart.
Posted by: DavidG | November 24, 2008 1:28 PM
lochnessmonster I agree with you. that is the same thing I thought when I saw this. does that mean that they will take all of those extra charges from our statement everymonth and maybe even give us alittle bit back? Makes you wonder what it will be like when Obama is actually in office what will happen.
Posted by: mickey | November 24, 2008 1:33 PM
They just keep ramping up that money printing press. Of course each time they ramp it up, the money in your wallet is worth less. Thanks for rewarding the idiots in charge by punishing every American.
Posted by: Scott | November 24, 2008 1:50 PM
Socialism is alive and well under the Cheney/Bush regime!!!!!!
Posted by: First Dude | November 24, 2008 4:20 PM
While I don't like it anymore than anyone else, a bailout of Citigroup is necessary. Citigroup probably has close to 10% of all deposits in the U.S. If Citigroup goes bankrupt, it doesn't declare Chapter 11 and reorganize, it liquidates and the FDIC takes over and all hell breaks loose in the financial markets. It's not to say that Citigroup isn't as much to blame for their demise as the Big 3, it's just that they are more important to the viability of the economy, despite what you may think. If Citigroup goes down, a big chunk of the credit market goes down. All of the credit they were providing good businesses goes away. We're trying to get banks to lend again, increasing liquidity in the market, not having credit seize up further. It's moral hazard: at some point an institution is too large to fail. The gov't can let smaller banks fail, but not one of Citigroup's size. There's not much chance of the Big 3 getting DIP funding in bankruptcy anyways, but without Citigroup or JPM, or Bank of America, there's absolutely no chance of companies in Chapter 11 obtaining the proper financing, there wouldn't be enough liquidity in the market.
Posted by: Pete | November 24, 2008 5:08 PM
Wall Street is now synonomous with Reagan's infamous welfare queen. You know, the one that was buying groceries with food stamps while wearing a mink and driving a cadillac. (Quite a coded image there!)
Bush's welfare queens get bonuses from the govt. coffers as a reward for being incompetent.
Posted by: chimpymcflightsuit'snavigator | November 25, 2008 6:15 AM