US to Inject $20 Billion into Citigroup, Back Assets

The U.S. government has agreed to guarantee over $300 billion of Citigroup’s troubled assets — loans and securities backed by residential and commercial real estate and other such assets — with conditions attached. These conditions are being hammered out.

In addition, the U.S. Treasury will invest $20 billion in Citigroup from the Troubled Asset Relief Program (TARP) in exchange for preferred shares with an 8 percent dividend. Citigroup will comply with enhanced executive compensation restrictions and implement the Federal Deposit Insurance Corp’s mortgage modification program. This is on top of the $25 billion that the government gave Citi in October.

In a late-night announcement after a weekend of talks about what to do to help Citi, the Treasury also said it and the FDIC will provide protection against losses in a pool of about $306-billion worth of loans and securities on Citigroup’s balance sheet. The Treasury said the U.S. Federal Reserve stood ready to backstop any additional risk in the asset pool through an offer of a non-recourse loan.

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“With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy”, the Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation said in a joint statement.

No Plans For Federal Takeover Of Citi

• A d v e r t i s e m e n t

The government officials decided against taking over Citigroup in the way it took control of AIG by lending the firm massive amounts of money and in return assuming a huge equity position.

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