The US government on Sunday night has finally decided to rescue the ailing Citigroup Inc. that is facing heavy losses amid global financial crisis. The federal financial bodies have agreed on a bailout plan of $306-billion for its capital and injection of $20-billion into the bank’s treasure from the Troubled Asset Relief Program.
Top three federal regulators – the US Treasury (The federal government’s treasury), the Federal Reserve (The master bank of US) and the Federal Deposit Insurance Corporation, FDIC (the public sector insurance corporation) in a joint statement have announced to aid enfeeble Citibank group which has lost 60% of its asset value last week due to sinking equity price in the US stock markets.
Last month, US Treasury had injected public funds of worth $25-billion in Citibank. The government has planned to aid $700-billion to once largest bank of the world that operates in more than 100 countries.
In Exchange, the bank would grant government shares of stock with 8% dividend. Moreover, it would also face restrictions on executive pay and other expenses under the deal, sources said.
Besides heavy losses on distributed risky loans and securities on residential and commercial real estate and other such assets, Citigroup has also been minced by mortgage-related losses, which has also become a cause of massive loss.
The Federal Reserve has also announced to support Citigroup in the remaining risk of asset pool through aiding a non-resource loan, said release. These moves of US government would heal the Citigroup up to great extent.
The market value of Citigroup that was $250-billion last year has dipped to $20.5-billion on Friday. The massive loss of approximately 60% has also fuelled the rumours that bank was preparing to sell out its large part. It has also lost the trust of the investors and hence investors are not willing to return towards Citibank’s share.
Citibank topped the market value in 2006 by whopping $270-billion while now; it has reached to its all time lowest.
In an attempt to save the bank from possible bankruptcy, Vikram Pandit, the Chief Executive Officer (CEO) of Citigroup, whose own job is under hammer, had announced last week to lay out 52,000 jobs against the previous announcement of 23,000 jobs cut.
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