The United States government has entered into an agreement with Citigroup to provide a package of guarantees, liquidity access and capital.
As part of the agreement, U.S. Treasury Department and the Federal Deposit Insurance Corporation will provide protection against the possibility of large losses on an asset pool of about US$306 billion of loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup’s balance sheet.
As a fee for this arrangement, Citigroup will issue $7 billion in preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan.
In addition, Treasury will invest $20 billion in Citigroup from the Troubled Asset Relief Program in exchange for preferred stock with an 8% dividend to the Treasury.
Citigroup will also comply with enhanced executive compensation restrictions and implement the FDIC’s mortgage modification program.
“This weekend, the U.S. government and Citi worked together in an unprecedented way to address market confidence and the recent decline in Citi’s stock price,” says Vikram Pandit, Citigroup’s chief executive officer. “We reached an agreement based on an innovative market solution to further strengthen our capital ratios, reduce risk, and increase liquidity. We appreciate the tremendous effort by the government to assure market stability.