Markets Speak Us Agrees For Rescue For Citigroup - Nov 24, 2008

The US government agreed to a $306 billion rescue plan for Citigroup Inc in the latest attempt to bolster a financial services industry in turmoil. The plan announced on Sunday calls for Citigroup to obtain $27 billion of capital by issuing preferred shares. The shares carry an initial 8 per cent dividend, higher than the 5 per cent it charges dozens of other lenders under its $700 billion financial industry rescue package. Citigroup itself got $25 billion in the earlier package. Citigroup agreed to absorb the first $29 billion of losses on the $306 billion portfolio, plus 10 per cent of additional losses, for a maximum total exposure of $56.7 billion.

The Treasury Department could end up absorbing $5 billion, the Federal Deposit Insurance Corp $10 billion, and the Federal Reserve the rest. The bank will not have to make management changes, but agreed to tighter restrictions on executive pay, and to try to modify troubled mortgages in the $306 billion portfolio. It also cannot pay more than 1 cent per share in common stock dividends per quarter for three years without the Treasury Department's consent. The quarterly dividend is now 16 cents. "The US government is taking the actions necessary to strengthen the financial system and protect US taxpayers and the US economy," the Fed, the Treasury Department and the FDIC said in a joint statement.