US government rescues Citigroup

25-11-2008

US government rescues Citigroup
The US government has agreed to bail out Citigroup after the bank's share price plunged last week.

Citigroup will receive up to $20 billion (£13.4 billion) from the US Treasury in return for an eight per cent dividend on preferred stock and will also get a government guarantee for $306 billion (£205 billion) of securities and assets.

Under the guarantee, Citigroup will absorb any losses up to $29 billion and the government will assume 90 per cent of any losses above that level.

The plan was agreed after a weekend meeting between Citigroup, the US Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC).

In a joint statement, the three agencies said: "With these transactions, the US government is taking the actions necessary to strengthen the financial system and protect US taxpayers and the US economy."

The bank is restructuring to become smaller and has announced thousands of job losses but is still seen as vulnerable to further market shocks.

Last week, Citigroup lost 60 per cent of its share value as investors lost confidence in the bank's ability to survive the downturn.

"This weekend, the US government and Citi worked together in an unprecedented way to address market confidence and the recent decline in Citi's stock price," said Vikram Pandit, chief executive officer.

The agreement with the government will come at a cost to the bank, however.

Ordinary shareholders will not receive more than one cent per share for three years in dividends from next quarter, while board members will have their pay packets, including bonuses, approved by the government.

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