U.S. Government Agrees to Massive Citigroup Bailout
The agreement marks a new phase in government efforts to stabilize U.S. banks and securities firms. After injecting nearly $300 billion of capital into financial institutions, federal officials now appear to be willing to help shoulder bad assets, on a targeted basis, from specific institutions.
Citigroup is one of the world's best-known banking brands, with more than 200 million customer accounts in 106 countries. Its plunging stock price threatened to spook customers and imperil the bank.
If the government's rescue plan is a success, it could help bring stability to the entire financial system. If it doesn't, even deeper doubts about the industry's future could spread.
After a weekend of marathon talks between Citigroup executives and top federal officials, the parties late Sunday night nailed down a package in which the government will help protect the company from its riskiest assets.
Under the plan, Citigroup and the government have identified a pool of about $306 billion in troubled assets. Citigroup will absorb the first $29 billion in losses in that portfolio. After that, three government agencies — the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. — will take on any additional losses, though Citigroup could have to share a small portion of additional losses.
The plan would essentially put the government in the position of insuring a slice of Citigroup's balance sheet. That means taxpayers will be on the hook if Citigroup's massive portfolios of mortgage, credit cards, commercial real-estate and big corporate loans continue to sour.
In exchange for that protection, Citigroup will give the government warrants to buy shares in the company.
In addition, the Treasury Department also will inject $20 billion of fresh capital into Citigroup. That comes on top of the $25 billion infusion that Citigroup recently received as part of the the broader U.S. banking-industry bailout.
The government and Citigroup had hoped to unveil the plan early Sunday evening, but negotiations dragged on longer than expected. Treasury Secretary Henry Paulson began briefing Congressional leaders about the plan later in the evening.
Read the full report at the Wall Street Journal
There are others more out there. But for how long can they still hold their breaths? Not much longer. Carefully watch and listen then understand, because their distress are as the flash of a light and their anxiety are as the noise of a sound. The lightnings of their distress are already flashing across the thick dark sky, and their thunders of anxiety are already roaring above the lands.
In a resources-constrained rescue scenario not all could be saved no matter how you would want to, therefore it is important to at least have some idea of who are those that need to be rescued so that the rescuer can properly prioritize according to the limits of his capacity and resources. Otherwise, there will only be minimal effect achieved when it could have been maximized.
Be very prudent with the resources, lest they will run out quickly before the season is over.