At the beginning of last week Citigroup unveiled massive layoffs; in the middle of the week it agreed to put $17.4 billion worth of the remaining Citi-advised structured investment vehicles on its books; and by the end of the week Citi shares were trading below $4.00. So yesterday the Treasury Department, the Federal Deposit Insurance Corp., and the Federal Reserve stepped in, plowing $20 billion from the Troubled Asset Relief Program into the giant and agreeing to backstop $306 billion in uncertain loans and assets. Citi will still have to cover the first $29 billion in losses. Beyond that the government will absorb 90 percent of potential losses, with Citi shouldering the rest. Treasury and FDIC will receive $7 billion in preferred stock as part of the deal.
Citi said the “program significantly strengthens Citi’s key capital ratios by generating approximately $40 billion of capital benefits as follows: $20 billion from the TARP investment; $3.5 billion, the portion of the $7 billion preferred stock fee recognized for capital purposes; [and] $16 billion of benefits resulting from the asset guarantee.” The infusion will put the bank’s Tier 1 capital ratio at 14.8 percent.