Monday, November 24, 2008

Government Agrees to Become CitiGroup's Largest Shareholder

Citigroup shares have soured this morning to more than 60% after federal officials agreed to a $326 billion rescue. The government will invest $20 billion directly to Citigroup and will guarantee up to $306 billion of Citi's troubled assets. The deal will give the government control over dividend limits and executive bonuses.

This is the first time the government has absorbed bad assets rather than inject money directly into financials.

This also makes the US government the largest shareholder of the failing bank at a 7.8% stake, just behind Saudi Prince Alwaleed bin Talal at 5% and the government of Abu Dhabi at 4.9%

It's crazy to think that at this exact time a year ago, the stock market valued Citi at $180 billion. Today its market capitalization stands at $20 billion and its share price has shriveled to just $3.75, a 16-year low.

This rushed design was put together this weekend with intensive negotiations involving the Treasury, the Federal Reserve and the Federal Deposit Insurance Corp.

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