The plan would inject as much as $20 billion of capital into Citigroup, and the federal government would guarantee up to $306 billion in assets.
Citigroup officials met on Friday and proposed a plan to the Federal Reserve for emergency aid as stock market turmoil wiped out most of the bank’s value. Negotiations between bank and Fed officials continued until late Sunday evening, when the Federal Reserve, the U.S. Treasury Dept., and the Federal Deposit Insurance Corporation (FDIC) decided a recue plan would be best to stabilize Citigroup and curb further selloffs on banking shares.
The program calls the fed to “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 and other such assets,” a joint statement from the FDIC read.
The $20 billion equity stake comes from the Troubled Asset Relief Program, with the Treasury receiving preferred shares with 8 percent annual dividend. In return, Citigroup would likely need to agree to certain executive compensation and spending restrictions.
With over $2 trillion in assets and customers in over 100 nations, Citigroup is among the companies deemed by federal officials to be too important to fail. Analysts believe the bank still needs more capital, but doubts over Citigroup’s survival have been diffused.
The rescue plan is a sudden and unfortunate turn of events for Citigroup, once the largest and one of the most respected banks in the United States. Last month, the company attempted to purchase the assets of Wachovia Corp. before Wells Fargo won the deal with a superior offer.
