The Government of Singapore Investment Corporation’s (GIC’s) 4 percent stake in Citigroup, bought for $6.88 billion in January, is now protected by the US government. US taxpayers will be on the hook if Citigroup's massive portfolios of mortgage, credit cards, commercial real-estate and big corporate loans continue to sour, reports the Wall Street Journal.
In exchange, Citigroup will issue $7 billion of preferred stock to government regulators, says the New York Times. In addition, the government is buying $20 billion of preferred stock in Citigroup. The preferred shares will pay an 8 percent dividend and will slightly erode the value of shares held by investors.
As part of the rescue agreement, Citigroup will also effectively halt dividend payments for the next three years, says the New York Times. But at least GIC won’t have to worry about the bank going belly up.
Citigroup has 200 million customers in more than 100 countries, almost $800 billion in bank deposits and $2 trillion in assets, reports the BBC.
Citigroup is widely viewed, both in Washington and on Wall Street, as too big to be allowed to fail, says the New York Times.
Under the plan, Citigroup and the government have identified a pool of about $306 billion in troubled assets. Citigroup will absorb the first $29 billion in losses in that portfolio. After that, three government agencies — the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. — will take on any additional losses, though Citigroup could have to share a small portion of additional losses, says the Wall Street Journal
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