Citigroup Inc. is getting $20 billion in additional government financing, in a bailout plan that buys the bank time without wiping out the investments of common and preferred shareholders.
The joint rescue effort announced Monday by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. also calls for the government to guarantee some $306 billion in troubled assets.
Citigroup will be responsible for only the first $29 billion in losses on the portfolio, which consists mainly of loans and securities backed by residential and commercial real estate, and related hedges. According to the term sheet for the deal, the Treasury Department would absorb the next $5 billion in losses, through the $700 billion Troubled Asset Relief Program passed by Congress last month.
The FDIC would bear the third round of losses, up to $10 billion. The summary does not say what would happen in the event of further losses, but the terms suggest that taxpayers could be on the hook for as much as $277 billion in the unlikely event that the assets become completely worthless.
In return for the guarantees, Citigroup will issue $7 billion in preferred stock -- $4 billion to the Treasury Department and $3 billion to the FDIC.
The deal would require Citigroup to cap the quarterly dividend on its common stock at no more than 1 cent a share, for at least the next three years .That's down sharply from the current rate of 16 cents, itself the product of a 50 percent reduction just last month.
The Treasury Department also will receive preferred stock in exchange for the $20 billion in new cash it is providing to the bank. It previously invested $25 billion in Citigroup as part of the first wave of a plan to inject $250 billion in capital into
Citigroup will pay annual dividends of 8 percent on the new preferred stock. The previous round of financing called for dividends of 5 percent for the first five years and 9 percent in subsequent years.
The latest deal calls for Citigroup to issue warrants to the Treasury Department to buy additional common stock. Those warrants have an aggregate exercise value of $2.7 billion, representing 10 percent of the value of the preferred stock issued in exchange for the financing and the asset guarantees.
The strike price on the warrants will be $10.61 a share, which equals the average closing price for the 20 trading days ending Nov. 21. Citigroup's stock closed Monday at $5.95 a share, up $2.18, or 57.2 percent.
I posted an article today at http://www.KeepAmericaAtWork.com that is something you probably won't see on here, so I'm going to bring it to your attention because I'm wondering about this set of double standards we apparently have for our banks and other bailout candidates
http://www.keepamericaatwork.com/index.php?option=com_content&view=article&id=235:double-standards&catid=37:economy
Virgil
http://www.KeepAmericaAtWork.com
I see what the strike price for the warrants are set at, but I haven't been able to find ANYWHERE what the share price for the original investment was set at.
Chris, do you have that information?
Thanks
P.S.: The sign-up process for simply commenting is pretty involved. You will get more activity on the blog if someone doesn't have to do a full registration and email confirm before simply commenting.