I suppose Citigroup is too big to fail after all…
Citi today reached an agreement with the Treasury, Federal Reverse, and FDIC, aimed at strengthening capital ratios, reducing risk, and boosting liquidity at the ailing bank.
The Treasury will invest $20 billion in the bank via preferred stock under the Troubled Asset Relief Program (TARP), on top of the $25 billion initially invested.
Citi will also issue an incremental $7 billion in preferred stock warrants to the Treasury and FDIC in exchange for a government guarantee on up to $306 billion in bad mortgage-related securities, loans, and other assets.
The bank and mortgage lender will assume losses on the troubled portfolio up to $29 billion, with the government responsible for 90 percent of losses beyond that level, and Citi assuming the balance.
The Treasury will be responsible for up to $5 billion in losses beyond what Citi covers, and the FDIC will take on up to an additional $10 billion in losses if the Treasury’s are exhausted.
The U.S. government will provide Citi with a template to manage the guaranteed assets, which includes adhering to mortgage modification procedures adopted by the FDIC.
Citi has also been provided “expanded access” to the Fed discount window and primary credit facility to further ease liquidity concerns.
As a result of the agreement, Citi will not pay out a common stock dividend exceeding one penny for the next three years, effective the next quarter.
Shares of Citi (C) climbed $2.17, or 57.56%, to $5.94 in early morning trading on Wall Street.
The company’s shares had fallen as low as $3.05 in the past week as concerns about its viability dragged down the broader market.