The deal would not involve new money from taxpayers. The
government already has invested
$45 billion in the troubled New York bank.
Citigroup now will be allowed to repay
up to $25 billion by
issuing the government shares of its
common stock, which carry ownership
rights. The government could end up
owning about a third of the
company, said the sources, who spoke on condition of
anonymity because the talks were ongoing.
A key feature of the (new) deal is that Citigroup must
find private investors to match the public
support. The government will accept common shares equal to the
amount accepted by those investors, up to a limit of $25 billion,
on a one-for-one basis.
Under the plan, the government would forgo billions of dollars
in dividend payments that Citigroup was required to make on the
existing investments, which paid annual interest of 5 percent.
However, taxpayers would benefit if Citigroup's shares rise in
value.
This is the third round of government help for Citigroup. In
October, Treasury invested $25 billion in the company. In November,
Citigroup got another $20 billion plus a government guarantee to
limit its losses on a portfolio of more than $300 billion of
troubled loans and other assets.
The steps did not comfort investors, who have
come to doubt whether the most international of U.S.
banks can withstand a global
recession. Citigroup's shares have lost 90 percent
of their value in the last year, closing at $2.48 in trading
yesterday on the New York Stock Exchange.
One apparent reason: Many investors concluded that the
government
money did not count
as part of
Citigroup's capital reserve against future losses, because the investment looked
like a loan.
The company was required to issue the government shares of
preferred stock, which carried an interest rate that spiked
after five years to encourage repayment.
http://www.washingtonpost.com/wp-dyn/content/article/2009/02/27/AR2009022700019.html?hpid=topnews