Citigroup receives $20bn injection of cash

| November 24, 2008 | 0 Comments

US banking giant Citigroup is to receive $20 billion (£13.3 billion) from the US Treasury in return for preferred shares in the struggling bank.

The rescue package follows a weekend of crisis talks with the bank, the Treasury department, the US Federal Reserve and the Federal Deposit Insurance Corporation (FDIC).

In a statement, the US Treasury, the Federal Reserve and the FDIC said “with these transactions, the US Government is taking the actions necessary to strengthen the financial system and protect US taxpayers and the US economy“.

The injection of cash is to come from the $700 billion bailout fund created last month.

On Friday, Citigroup’s market value fell to $20.5 billion, against $270 billion in 2006. Shares in the bank were trading at $54 two years ago, however, the shares closed on Thursday at $4.71.

In the meantime, last week Citigroup announced plans to slash 52,000 jobs worldwide as it aims to cut costs due to enormous losses which arose from the US sub-prime mortgage crisis and the credit crunch.

Under the terms of the deal, the Treasury will take a $20 billion stake in the bank in return for guaranteeing around $306 billion of risky loans and securities on Citigroup’s books.

In addition, the terms mean Citigroup must take action to help struggling homeowners, which includes helping them avoid foreclosures by modifying mortgages.

Citigroup is one of many in a series of bailouts from the US Government including Bear Stearns, Fannie Mae, Freddie Mac and insurance giant, AIG.

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