Making headlines is yet another bailout for the financial industry. U.S stock markets opened higher today as news of the Citigroup bailout plan traveled.
The U.S government announced Sunday a rescue package for Citigroup, the parent company of Citibank that would inject another $20 billion on top of the previous $25 billion that was part of the $700 billion bailout passed by Congress in October 2008.
The government is to receive preferred shares – $20 billion for its investment and another $7 billion as compensation for the loan guarantees. Citigroup is to pay an 8% dividend on those shares.
The governemt also retains the right to purchase another $2.7 billion worth of Citigroup shares in the future.
The Citigroup money comes with restrictions. Citigroup can not pay out a dividend more than a penny per share over the next 3 years and will have limits on executive compensation.
Citigroup will be on the hook for the first $29 billion in losses and would cover 10% above that amount with the government bailout plan covering the rest.
As of today Citibank is the largest bank to seek help in form of a bailout. Citibank has $2 trillion of assets on its books with another $1.25 trillion of questionable loan assets.
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