Citigroup Receives Second Government Bailout

Citigroup has been given another $20 million in capital from the federal government to aid the beleaguered financial giant. The federal government has also agreed to guarantee $306 billion in loans and securities backed by residential and commercial real estate. In exchange for the bailout Citigroup has agreed that executives will face restrictions on compensation and that the bank will not pay out a dividend of more than a penny per share for common stock. The government will also receive an additional $7 billion stake in the company in preferred stock with an 8% dividend.

The announcement was made in a joint statement released Sunday evening by the Treasury Department, the FDIC, and the Federal Reserve. The joint statement said that "The U.S. government is committed to supporting financial market stability, which is a prerequisite to restoring vigorous economic growth. In support of this commitment, the U.S. government on Sunday entered into an agreement with Citigroup to provide a package of guarantees, liquidity access and capital."

Under the plan Citigroup will be responsible for covering the first $29 billion in losses for the covered assets. After that the government will cover 90% of the losses up to $306 billion and Citigroup will have to cover the other 10%. The guarantee is in place for 10 years for residential assets and 5 years for commercial assets.

Citigroup's stock has been battered this week by short selling, concerns of their exposure to toxic mortgage assets and a general consumer crisis in confidence. It lost 60% of its value this week closing at just $3.87 on Friday leaving Citigroup with great difficulty in selling itself to another company or raising more capital. Citigroup stock is down 87% from its high at the beginning of 2008 after being hit hard by its exposure to risky subprime mortgages and other risky investments.

Citigroup's executives had been in intense meetings since Friday. Some were internal as Citigroup executives struggled to find a way out of the morass, but many of the meetings were with government officials including calls with Treasury Secretary Henry Paulson and Timothy Geithner, President of the New York Federal Reserve Bank and reported choice of President-Elect Barack Obama for Treasury Secretary. The meetings continued on Sunday amid reports that a bailout agreement was near.

On Friday, Citigroup CEO Vikram Pandit and CFO Gary Crittenden stated that they did not expect to sell the Smith Barney brokerage unit and Pandit re-iterated to employees that he doesn't plan to break up the massive financial company. This news came at the end of a week when Citigroup announced that it was planning over 50,000 additional layoffs and Saudi Prince Alwaleed bin Talal increased his ownership stake in the company.

Citigroup has been put into the "too big to fail" category by many analysts due to its $2 trillion in global assets and intricate connections throughout the financial world. The company has already received a $25 billion bailout from the government in October. Citigroup executives have stated that the company has enough capital to ride out this storm. Citigroup does currently has $50 billion in capital above what is required to by regulators to be declared as "well capitalized," but this week's thrashing of their stock has sparked market fears of the company's viability. Citigroup executives and investors along with all of Wall Street will be watching to see if this latest bailout will help to right this sinking ship.