The Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. announced this weekend that it would provide a multibillion-dollar backstop for Citigroup. In agreeing to protect Citigroup against potential losses on a $306 billion pool of troubled assets, the government made clear that it was not going to allow one of the nation's largest financial firms to collapse.
Citigroup will absorb the first $29 billion in any further losses on these assets, which are primarily securities backed by mortgages and commercial real estate loans, with the government stepping in to cover most of the losses beyond that amount. The distressed assets would be fenced off by Citigroup from the rest of its holdings, allowing the firm to insulate itself from the fallout. In return, the government is to receive up to $7 billion in preferred shares. Citigroup is the largest U.S. bank by assets, with $2 trillion on its books, but has incurred billions of dollars in losses in the past 18 months partly due to repackaging bad loans into what were viewed as safe securities.
As a condition of the emergency assistance, the company will have to adhere to new restrictions on what it pays its executives and carry out an FDIC program to help homeowners avoid foreclosure. According to a Washington Post article, Citicorp will begin reaching out this month to an estimated 500,000 customers who are not currently delinquent but who appear to be at risk — either because their credit files show telltale signs of financial stress or because their homes are in markets Citicorp classifies as facing serious economic strains and job losses in the coming year.
For more real estate news and information, visit Blumberg Capital Partners.
Comments