Citi receives Gov bailout
(25 November 2008 – USA) The US Government has taken its biggest step yet to prevent the collapse of a big bank, by agreeing to rescue Citi from its risky assets and inject much needed capital.
The Government has agreed to shoulder most of the potential losses from US$306 billion (A$ 475 billion) in its risky assets and inject US$20 billion in new capital,
The bailout comes after an announcement by Citi that it would shed over 50,000 of its 350,000 plus workforce.
The US$20 billion of government capital comes after it injected US$25 billion last month. In this round, the government is buying preferred stock that will pay an 8 percent dividend.
In exchange for the bailout, Citigroup slashed its quarterly dividend to a penny per share from 16 cents. It cannot raise the payout for three years without U.S. consent.
Citigroup will absorb the first US$29 billion in losses on the US$306 billion portfolio, plus 10 percent of additional losses, for a maximum total exposure of $56.7 billion. The Treasury Department, the Federal Deposit Insurance Corp and the Federal Reserve would absorb the rest.
The US government is also getting warrants to buy US$2.7 billion in Citigroup common stock at US$10.61 per share for a potential 4.5 percent stake. That's on top of the roughly 3.3 percent the government is entitled to buy under a previous deal.
Citigroup has estimated the injection will give it a Tier 1 capital ratio of 14.8 percent, more than twice what the government requires. The government also increased Citigroup's access to the Federal Reserve's discount window, which will add liquidity.
The bailout comes after an announcement by Citi that it would shed over 50,000 of its 350,000 plus workforce.
The US$20 billion of government capital comes after it injected US$25 billion last month. In this round, the government is buying preferred stock that will pay an 8 percent dividend.
In exchange for the bailout, Citigroup slashed its quarterly dividend to a penny per share from 16 cents. It cannot raise the payout for three years without U.S. consent.
Citigroup will absorb the first US$29 billion in losses on the US$306 billion portfolio, plus 10 percent of additional losses, for a maximum total exposure of $56.7 billion. The Treasury Department, the Federal Deposit Insurance Corp and the Federal Reserve would absorb the rest.
The US government is also getting warrants to buy US$2.7 billion in Citigroup common stock at US$10.61 per share for a potential 4.5 percent stake. That's on top of the roughly 3.3 percent the government is entitled to buy under a previous deal.
Citigroup has estimated the injection will give it a Tier 1 capital ratio of 14.8 percent, more than twice what the government requires. The government also increased Citigroup's access to the Federal Reserve's discount window, which will add liquidity.
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