Citigroup support package entails government insurance of $306bn of troubled assets; additional $20bn of additional government capital

Citigroup entered an agreement with the Fed, US Treasury and FDIC to receive "a package of guarantees, liquidity access and capital". As part of the agreement, the US Treasury and FIDC are to "provide protection against the possibility of unusually large losses on an asset pool of approximately $306bn of loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup's balance sheet.

As a fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan".

As well, the US Treasury is to inject $20bn of new capital into Citigroup from the TARP, "in exchange for preferred stock with an 8% dividend to the Treasury". Citigroup is to "comply with enhanced executive compensation restrictions and implement the FDIC's mortgage modification program".

The WSJ reported that the two sides had identified a pool of about $306bn in troubled assets (out of Citigroup's $2trn in balance sheet entities and $1.23trn of off-balance sheet assets) and that Citigroup would absorb the first $29bn of losses from the troubled asset portfolio; thereafter, the US Treasury, Federal Reserve and FDIC would take on the bulk of any additional losses.  Julian Callow from Barclays Capital wrote in an emailed report.