Feds Consider Plan To Rescue Citigroup

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krogoth's picture
krogoth
Status: Platinum Member (Offline)
Joined: Aug 18 2008
Posts: 576
Feds Consider Plan To Rescue Citigroup

Looks Like Chris M. was right about the weekend pizza party. I am just amazed they let this out because it could cause a serious bank run- Krogoth

A plan to rescue Citigroup, the financial giant which lost half its value in the stock market last week, is being seriously considered by federal regulators with the Wall Street Journal reporting that both sides are close to an agreement Sunday night:

The talks Sunday centered on the creation of what is sometimes called a "bad bank" - an outside entity designed to hold some of a financial firm's worst assets. That structure would help Citigroup cleanse itself of billions of dollars in potentially toxic assets, these people said.


Under the terms being discussed with top Treasury Department and Federal Reserve officials, Citigroup would agree to absorb losses on assets covered by the agreement up to a certain threshold, people familiar with the matter said. The U.S. government would then absorb any additional losses, these people said. One person said the new entity is expected to hold about $50 billion of assets.

That would mean taxpayers could be on the hook if Citigroup's massive portfolios of mortgage, credit cards, commercial real-estate and big corporate loans continue to sour.

It was unclear Sunday night whether the government would take an equity stake in Citigroup in return for the support. Also uncertain was whether Citigroup would get a government loan to finance the facility. The government took that approach with insurer American International Group Inc. in late September.

 

The Associated Press reports:

The Treasury Department and the Federal Reserve have been in discussions over the weekend to devise a strategy to stabilize the company, according to people familiar with the talks. They spoke on condition of anonymity because the discussions were ongoing.


One option being considered is taking some of the risky assets held by Citigroup off its balance sheet, a move that would give the company more breathing room and put it in a better position to raise capital. It was unclear, however, exactly how that option might be structured, the people said.

 

The New York Times adds more details:

Under the proposal, the government would shoulder losses at Citigroup if those losses exceeded certain levels, according to these people, who spoke on the condition that they not be identified because the plan was still under discussion.


If the government should have to take on the bigger losses, it would receive a stake in Citigroup. The banking giant has been brought to its knees by gaping losses on mortgage-related investments.

If approved, the plan could serve as a model for other banks, heralding another shift in the government's morphing financial rescue. The Treasury Department initially proposed buying troubled assets from banks but then reversed course and began injecting capital directly into financial institutions.

The plan for Citigroup was still under discussion on Sunday afternoon, and it was unclear exactly how the arrangement might work. One question is how Citigroup and the government would determine the level of losses that the bank itself must bear before the government steps in. Another is whether any additional government money for Citigroup, which has already received $25 billion under the initial rescue plan, would come from the $700 billion industry bailout that Congress approved in October or from other sources, like the Federal Reserve or the Federal Deposit Insurance Corporation.

Regulators were debating various terms of the arrangement on Sunday, including whether the government would receive preferred stock or warrants, which are instruments that give holders the right to buy stock. Preferred stock would be more beneficial to taxpayers because Citigroup would pay dividends on those shares; warrants would be more attractive to Citigroup's existing shareholders, since they would not immediately dilute the value of their investments as much as preferred stock.

 

lundsta's picture
lundsta
Status: Bronze Member (Offline)
Joined: Oct 13 2008
Posts: 89
Re: Feds Consider Plan To Rescue Citigroup

I guess they still think bailouts are the best option. Their "bad debts" are only going to increase. Whatever the gov. wipes out now down the road they will still have the same issue. How much will this bailout cost?

Next week should be interesting. If they do let Citigroup go.....be prepared for accelerated bank failures.  

chaster's picture
chaster
Status: Member (Offline)
Joined: Aug 27 2008
Posts: 6
Re: Feds Consider Plan To Rescue Citigroup

Nope, Citigroup is "too big to fail"... More fuel for the fire..

 

http://news.bbc.co.uk/2/hi/business/7745168.stm

 

"The US government has announced a rescue plan for
troubled banking giant Citigroup after its shares plunged by more than
60% last week.

The US Treasury is set to invest $20bn (£13.4bn) in return for preferred shares in Citigroup.

The Treasury and the Federal Deposit Insurance Corp will also
guarantee up to $306bn (£205bn) of risky loans and securities on
Citigroup's books.

The plan follows a $25bn injection of public funds in the bank last month."

 

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