After a long weekend of negotiating, the government agreed Sunday to a bailout of Citigroup. The deal calls for a cash injection of $20 billion. The deal also calls for a backstop of more than $300 billion in troubled Citigroup assets. Under the arrangement, Citigroup would be on the hook for the first $29 billion in losses stemming from those assets. After that, the Federal Deposit Insurance Corp., the Treasury Department, and the Federal Reserve would shoulder any remaining losses.
From the U.S government press release:
The U.S. government is committed to supporting financial market stability, which is a prerequisite to restoring vigorous economic growth. In support of this commitment, the U.S. government on Sunday entered into an agreement with Citigroup to provide a package of guarantees, liquidity access, and capital.
As part of the agreement, Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $306 billion of loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup's balance sheet. As a fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan.
In addition, Treasury will invest $20 billion in Citigroup from the Troubled Asset Relief Program in exchange for preferred stock with an 8% dividend to the Treasury. Citigroup will comply with enhanced executive compensation restrictions and implement the FDIC's mortgage modification program.
A copy of the term sheet can be found here (link).
The joint press release from the U.S. government can be found here (link).