The United Socialists of American government decided to bailout Shitigroup by guaranteeing $306 billion of Citigroup's assets and injecting a further $20 billion in equity.
Citigroup Gets Guarantees on $306 Billion of Assets
Citigroup Inc., facing the threat of a breakup or sale, received $306 billion of U.S. government guarantees for troubled mortgages and toxic assets to stabilize the bank after its stock fell 60 percent last week.
Citigroup also will get a $20 billion cash injection from the Treasury Department, adding to the $25 billion the company received last month under the Troubled Asset Relief Program. In return for the cash and guarantees, the government will get $27 billion of preferred shares paying an 8 percent dividend. Citigroup rose as much as 41 percent in German trading today....
....The government’s preferred shares come with warrants to buy 254 million Citigroup shares at $10.61 each, allowing taxpayers to profit if the stock rallies following the government’s investment, according to a term sheet that accompanied the agencies’ statement. Citigroup is required to pay a quarterly dividend of no more than 1 cent a share for the next three years, down from 16 cents in the most recent quarter.
....Terms of the asset guarantees mean Citigroup will cover the first $29 billion of pretax losses from the $306 billion pool, in addition to any reserves it already has set aside. After that, the government covers 90 percent of the losses, with Citigroup covering the rest from assets, including residential and commercial mortgages, leveraged loans and so-called structured investment vehicles....
Let's be clear, Citigroup is insolvent, it's as simple as that, along with Fannie and Freddie and AIG they are being propped up by the government. I guess we should expect a pop in Citigroup stock folowing the bailout announcement, however you definitely wouldn't buy Citigroup stock for yield, since they won't be paying much in the way of diviends in the next 3 years. And if you think Citigroup is going to have any earnings in the next year, think again. They'll be taking writedowns and making losses for at least another 12 months.
Claims by CEO Pandit just last week that Citi had adequate capital ring hollow, and for anyone paying attention that was obvious. As I said yesterday and have been saying for a month, the capital injections under the TARP program would not even come close to being adequate because of the amount of losses linked to toxic assets on bank balance sheets.