Monday, November 24, 2008

Citigroup: the latest government rescue

Is your company in danger of failing as the share price plummets? Fear not; government funded bailouts can have a restorative effect on stock prices, at least in the short term.

From Marketwatch, "Citigroup soars as US acts to backstop losses":

"Citigroup shares rocketed more than 60% higher Monday after federal officials agreed to a $326 billion rescue of the company that was once the largest U.S. bank as it pioneered the one-stop-shop model combining business and consumer financial services.

The government intends to invest $20 billion in Citigroup (C) and to guarantee as much as $306 billion of the company's troubled assets in a deal reached late Sunday evening. The agreement also gives the government control of executive bonuses, and it places limits on dividend payments.

The deal would likely make the government the largest Citi shareholder. The U.S. will end up with a 7.8% stake in Citigroup, Chief Financial Officer Gary Crittenden said on CNBC television Monday."

So the government has become the largest shareholder in a highly troubled bank (Citigroup). That's always a good sign...

And where is the money for this latest rescue package/government "investment" coming from?

You already know the answer to that question, I'll wager. But just in case, here's a summary view from the LA Times Money & Co. blog:

"Under the plan, Citigroup would absorb the first $29 billion in losses on a pool of $306 billion in troubled assets. After that, the government –- that is, taxpayers –- would shoulder 90% of any additional write-downs with Citigroup responsible for the other 10%."

So America, are you thrilled with your latest indirect purchase?

Related articles and posts:

1. "Citigroup gets US rescue from losses" - Bloomberg.

2. "Meredith Whitney on FT.com" - Finance Trends.

3. "Jim Rogers: 'let banks fail'" - Finance Trends.

4. "US pledges top $7.7 trillion to ease frozen credit" - Bloomberg.