Monday, November 24, 2008

Another bailout that could cost billions

U.S. to Back Citigroup's Troubled Assets

Adam Samson and Joanna Ossinger
FOXBusiness

The federal government on Sunday night said it would throw its weight toward stabilization of troubled financial-services giant Citigroup Inc. (C) by moving to guarantee $306 billion in troubled assets on the bank's books, according to a joint statement issued by the Federal Reserve, Treasury Department and Federal Deposit Insurance Corp.

The deal involves Treasury injecting an additional $20 billion in capital into Citigroup. Treasury will charge an 8% interest rate for the first few years, which is higher than the rate charged to other banks participating in the Troubled Asset Relief Program. Citi had already received $25 billion in aid from TARP.

Citi will also issue $7 billion in preferred stock with an 8% dividend that will be split between the Treasury and the FDIC. If those dividends aren’t paid in full for six dividend periods – whether consecutive or not – the Preferred shareholders will have the right to elect two directors. That right ends when a certain amount of the dividends are paid up.

Among other measures, the new agreement limits common-stock dividends of more than one cent a share for the next three years without the permission of the Treasury, FDIC and Fed.

“A factor taken into account for consideration of the [government’s] consent is the ability to complete a common stock offering of appropriate size,” the release said.

The government also agreed to backstop a $306 billion pool of Citi's assets, which is meant to provide Citigroup with "protection against the possibility of unusually large losses." Assets will remain on Citi's books, the Fed said, but will be appropriately "ring-fenced."
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