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Citi Bailout Includes Streamlined Modifications

Government to invest $20 billion, guarantee $306 billion

November 24, 2008

By MortgageDaily.com staff

TARP news

A bailout of Citigroup Inc. involves a government guarantee of more than $300 billion in assets and includes an agreement by the Wall Street giant to adopt the streamlined modification program utilized at IndyMac Federal Bank FSB.

The Treasury and the Federal Deposit Insurance Corporation will guarantee $306 billion of Citigroup assets -- including loans, residential mortgage-backed securities and commercial MBS -- a joint announcement from the Treasury, FDIC and Federal Reserve yesterday said.

Citigroup will absorb up to $29 billion in portfolio losses on the assets, then the government will cover 90 percent of losses above that. The Troubled Asset Relief Program will eat the first $5 billion in government losses and the FDIC will be responsible for the next $10 billion.

The fed is prepared backstop residual risk in the asset pool with a non-recourse loan. The assets will remain on Citigroup's balance sheet.

In return, the New York-based financial conglomerate will issue $4 billion in 8 percent preferred shares to the Treasury and $3 billion to the FDIC.

The Treasury will also use $20 billion from the TARP to purchase 8 percent preferred stock.

Citigroup has agreed to implement the FDIC's mortgage modification program that was created for IndyMac Federal Bank following its collapse in July. Citi also agreed to comply with enhanced executive compensation restrictions.

Citigroup reported this month that it would reduce headcount by 52,000 in the "near term." During the four quarters ended Sept. 30, the financial institution has had losses totaling more than $20 billion.

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