Citigroup gets guarantee on $306 bn assets

The US government has decided to extend a fresh lifeline to crisis-ridden Citigroup with a $40 billion capital infusion, while standing guarantee to $306 billion worth assets of the financial behemoth.

The latest bailout package, under which the government would also get Citi shares, comes on the top of a $25 billion federal support last month and follows an erosion of more than 60 per cent in its shares last week amid speculations that the bank might be sold off or at least torn into pieces due to its bad financial health.

There also have been rumours that Citi's India-born CEO Vikram Pandit, who was elevated to the top post in December last year to steer the bank out of its financial mess, might be shown the door for failing to revive its fortunes.

As part of the latest deal, the US Treasury department would purchase preferred stocks of Citi worth $20 billion, which is in addition to it buying $25 billion worth preferred shares in the firm in October.

Apart from $20 billion as part of the Troubled Asset Relief Programme, Citi would get $16 billion worth capital under the asset guarantee and another $3.5 billion from preferred stock fees, recognised for capital purposes.

Citi has entered into an agreement with US Treasury, the Federal Reserve Board and the Federal Deposit Insurance Corp (FDIC) for a series of steps to strengthen its capital ratios, to reduce risk and enhance liquidity.

Besides, the Treasury and FDIC would provide protection against $306 billion of toxic loans and securities backed by residential and commercial real estate and other such assets, which would remain on Citi's balance sheet.

The bank said that the pact also requires it to get the government's approval on executive compensation, including bonuses.