That was an amazingly fast fall from grace. Last night there were plenty of rumors about options being weighed, none of them very positive. It was only a few weeks ago that Citi was throwing lawsuits around because Wells Fargo had the audacity to purchase Wachovia with their own money instead of taxpayers funding their purchase. Can you imagine how much more this would have cost if that sale went through? Here’s another management team that needs to be sent packing, without bonuses or whatever freebie they think they deserve. It’s also time to go back at previous bonuses that have been paid out to the likes of Charles Prince and reclaim that funny money.
The problem continues to be a lack of faith in the markets and for good reason. Would you trust your own money in this market? Without trust there is nothing.
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, 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. 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.
“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.