U.S. Agrees To Citigroup Bailout

What a start to a week..... I´m running out of words .... Just a few points...... Reminds me of the UBS bailout ( see UBS Transferring $60 Billion in Dud Assets to Swiss National Bank, Raises $5.3 Billion ).....On top of this it is looking more and more like John Hempton was spot on (make sure you read his theory) .....Hat tip Naked Capitalism.... After the structure & terms of this bailout it will almost be impossible to deny any other enquiries ( GM...... )...... UPDATE: Official Term Sheet is out and has some slightly different numbers & details or read the Summary via FT Alphaville

Da mir anhand der tagtäglichen Ungeheuerlichkeiten bald die Worte fehlen möchte ich lediglich sagen das hier wohl Anleihen aus der Schweiz übernommen worden sind ( siehe UBS Transferring $60 Billion in Dud Assets to Swiss National Bank, Raises $5.3 Billion ).... Zudem empfehle ich dringend nachfolgenden Link von John Hempton zu lesen.... Was zum Zeitpunkt des Postings für viele noch ungeheuerlich erschien ist rückblickend fast als genial zu bezeichnen...... Beide Male geht der Dank an Naked Capitalism ... Die Struktur sowie die Bedingungen diese Bailouts achen es unmöglich überhaupt noch eine Anfrage weiterer Bailouts abzulehnen ( GM.... )..... UPDATE: Das offizielle Memo ist veröffentlicht und beinhaltet einige kleine Abweichungen hinsichtlich Summen und Bedingungen. Eine nette Zusammenfassung gibt es von FT Alphaville

WSJ Billions in Toxic Assets May Be Removed; New Phase for Government Bank Rescue

WASHINGTON – The federal government agreed Sunday to take unprecedented steps to stabilize Citigroup Inc. by moving to guarantee close to $300 billion in troubled assets weighing on the bank's books, according to people familiar with details of the plan.

Treasury has agreed to inject an additional $20 billion in capital into Citigroup under terms of the deal hashed out between the bank, the treasury Department, the Federal Reserve, and the Federal Deposit Insurance Corp. Treasury officials will charge a higher interest rate for the capital injection -- 8% for the first few years

-- than it has charged to dozens of other banks now borrowing money under the government's the $700 billion rescue package approved by Congress last month.

In addition to the capital, Citigroup will have an extremely unusual arrangement in which the government agrees to backstop a roughly $300 billion pool of its assets, containing mortgage-backed securities among other things. Citigroup must absorb the first $37 billion to $40 billion in losses from these assets. If losses extend beyond that level, Treasury will absorb the next $5 billion in losses, followed by the FDIC taking on the next $10 billion in losses. Any losses on these assets beyond that level would be taken by the Fed.

Citigroup would also agree to work to modify -- if possible -- troubled mortgages held in the $300 billion pool, using standards created by the FDIC after the collapse of IndyMac Bank.

The government is not expected to require any management changes, as that was seen as potentially being too destabilizing.

Under terms of the agreement, the Treasury Department and FDIC will guarantee $306 billion of Citigroup loans and securities backed by residential and commercial real estate and other assets, which will remain on the bank's balance sheet. Citigroup will absorb the first $29 billion of losses, with the government stepping in after that as "protection against the possibility of unusually large losses."

> Make sure you read Citi of over-leveraging to put Citi´s loss absorbtion into perpective.......

> Empfehle einen Blick auf Citi of over-leveraging um zu erkennen das die Verlustsumme der Citi ein einziger Witz ist.....

Among the conditions that Citigroup agreed to is "an executive compensation plan, including bonuses, that rewards long-term performance and profitability, with appropriate limitations," according to the Treasury Department. Details on the company's compensation "must be submitted to, and approved by" the government. .....

The plan would essentially put the government in the position of insuring a slice of Citigroup's balance sheet.

Another possibility on the table was the creation of what is sometimes called a "bad bank" -- an outside entity designed to hold some of a financial firm's worst assets. That structure would help Citigroup cleanse itself of billions of dollars in weak assets, these people said.

In either case, taxpayers could be on the hook if Citigroup's massive portfolios of mortgage, credit cards, commercial real-estate and big corporate loans continue to sour.

It was unclear Sunday night whether the government would take an additional equity stake in Citigroup in return for the support. Citigroup previously agreed to issue the government preferred shares in return for the $25 billion the bank received as one of the first nine companies to get capital infusions.

If the government sets up the bad-bank structure, the amount of financial support will be a key variable. If there is too little, investors might conclude that the bad assets will wipe it out, leaving the bank right where it was before.

In addition to $2 trillion in assets Citigroup has on its balance sheet, it has another $1.23 trillion in entities that aren't reflected there. Some of those assets are tied to mortgages, and investors have worried they could cause heavy losses if they are brought back on the company's books.

One rescue structure under consideration would resemble aspects of the $150 billion bailout plan the government struck with American International Group Inc. in November. Two vehicles, funded largely by as much as $52.5 billion in government money, were created to take on risks from some of AIG's souring assets, including exposure to credit derivatives. That deal also reduced interest costs on AIG's previously arranged $60 billion loan from the government.

In Citigroup's case, the government's arrangement likely will be able to accommodate only a sliver of the company's more than $3 trillion in assets, including its holdings in off-balance-sheet entities. Jitters about such "hidden" assets helped trigger the nose-dive in Citigroup's stock last week. Among the off-balance-sheet assets are $667 billion in mortgage-related securities.

Citigroup has tried repeatedly to rid itself of its exposure to those assets. In late September, the company reached an agreement for a government-financed acquisition of Wachovia Corp. Under that planned deal, Citigroup and the government were going to divvy up the losses on $312 billion of assets, with Citigroup absorbing the first $30 billion in losses and the government shouldering the remainder.

Citigroup described that arrangement as intended to insulate it from Wachovia's risky mortgage assets. But Citigroup also would have been able to unload some of its own assets, according to people familiar with the matter.