Citi gets $20 billion cash injection and support for $306 billion bad assets

24 November 2008

The US government will inject $20 billion in fresh capital and give guarantees for about $306 billion of Citigroup's troubled loans, in a bid to save the beleaguered US banking giant from collapse.

The $20 billion funds being injected into Citi would carry an interest rate of 8.0 per cent for the first few years, a higher rate than that charged for other banks borrowing money from the $700 billion federal bailout fund, the Wall Street Journal reported.

In return, Citi will offer the government preferred shares. Citi will also modify, if possible, troubled mortgages held in the $306 billion pool, according to the guidelines issued by the Federal Deposit Insurance Corp (FDIC).

Citi should also get approval; from the government for all executive compensation, including bonuses.
 
Citi is trying to churn off its risky assets and put them under a separate government-supported company for managing bad assets or `bad bank'. The report said.

New York based Citi has over $2 trillion in total assets and another nearly $1.2 trillion in bad assets, which are mostly off-balance sheet.

Citi hammered out the agreement with the treasury department, the Federal Reserve and the Federal Deposit Insurance Corporation after its stock plunged 60 per cent to below $4 a share last week.  The stock is down 87 per cent so far this year.