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US rescues ailing Citigroup bank US rescues ailing Citigroup bank
(about 1 hour later)
The US government has announced a rescue plan for the Citigroup banking giant after its shares plunged by more than 60% last week. The US government has announced a rescue plan for troubled banking giant Citigroup after its shares plunged by more than 60% last week.
The US treasury department is to invest $20bn (£13.4bn) in return for preferred shares in Citigroup. The US Treasury is set to invest $20bn (£13.4bn) in return for preferred shares in Citigroup.
The treasury and the Federal Deposit Insurance Corp will also guarantee up to $306bn (£205bn) of risky loans and securities on Citigroup's books. The Treasury and the Federal Deposit Insurance Corp will also guarantee up to $306bn (£205bn) of risky loans and securities on Citigroup's books.
The plan follows a $25bn injection of public funds in the bank last month.The plan follows a $25bn injection of public funds in the bank last month.
Citigroup's market value fell to $20.5bn on Friday, compared with $270bn in 2006.Citigroup's market value fell to $20.5bn on Friday, compared with $270bn in 2006.
Last week the company announced 52,000 job losses worldwide, on top of 23,000 job cuts previously announced.Last week the company announced 52,000 job losses worldwide, on top of 23,000 job cuts previously announced.
Citigroup has lost more than $20bn in the past year because of the global financial crisis, suffering four straight quarterly losses.Citigroup has lost more than $20bn in the past year because of the global financial crisis, suffering four straight quarterly losses.
'Protecting taxpayers''Protecting taxpayers'
We will continue to use all of our resources to preserve the strength of our banking institutions, and promote the process of repair and recovery and to manage risks Federal statement .
The action plan was announced after emergency talks over the weekend between the bank and the treasury department, the Federal Reserve and the Federal Deposit Insurance Corp.The action plan was announced after emergency talks over the weekend between the bank and the treasury department, the Federal Reserve and the Federal Deposit Insurance Corp.
We will continue to use all of our resources to preserve the strength of our banking institutions, and promote the process of repair and recovery and to manage risks Federal statement
Citigroup is one of the leading US banks and has operations in more than 100 countries.Citigroup is one of the leading US banks and has operations in more than 100 countries.
Many analysts had calculated that the huge financial institution was too big to allow to fail.Many analysts had calculated that the huge financial institution was too big to allow to fail.
"With these transactions, the US government is taking the actions necessary to strengthen the financial system and protect US taxpayers and the US economy," the three agencies said in a statement."With these transactions, the US government is taking the actions necessary to strengthen the financial system and protect US taxpayers and the US economy," the three agencies said in a statement.
"We will continue to use all of our resources to preserve the strength of our banking institutions, and promote the process of repair and recovery and to manage risks," they added."We will continue to use all of our resources to preserve the strength of our banking institutions, and promote the process of repair and recovery and to manage risks," they added.
The cash injection will come from the $700bn financial bail-out fund created last month.The cash injection will come from the $700bn financial bail-out fund created last month.
Focus on detailsFocus on details
Many analysts believe the plan to rescue Citigroup will help reduce uncertainty in the market.Many analysts believe the plan to rescue Citigroup will help reduce uncertainty in the market.
This proudest of US banks has been humbled: the rescue is about as close to nationalisation as it's possible to get without the state taking 100% ownership. Robert Peston BBC Business editor Read Robert Peston's blog
"We expect the US bail-out of Citigroup as well as Obama's promise of a major stimulus plan - with key Democrats suggesting numbers between $500bn and $700bn, much bigger than expected - to allow stock markets to gain across the globe, " said Dariusz Kowalczyk at CFC Seymour in Hong Kong."We expect the US bail-out of Citigroup as well as Obama's promise of a major stimulus plan - with key Democrats suggesting numbers between $500bn and $700bn, much bigger than expected - to allow stock markets to gain across the globe, " said Dariusz Kowalczyk at CFC Seymour in Hong Kong.
Markets are keenly awaiting for more details of the plan to be revealed.Markets are keenly awaiting for more details of the plan to be revealed.
"Clearly, the market focus today will be on the release of a concrete rescue plan for the bank, details of which remain fluid; reports so far have noted that any infusion plan is provisional and subject to change," said Sue Trinh at RBC Capital Markets in Sydney."Clearly, the market focus today will be on the release of a concrete rescue plan for the bank, details of which remain fluid; reports so far have noted that any infusion plan is provisional and subject to change," said Sue Trinh at RBC Capital Markets in Sydney.
"Does this mean support for other financial institutions will be this big? Does this mean there will be more problems around calculation of so-called toxic assets? It's too early to say," said Tony Morriss at ANZ Bank in Sydney."Does this mean support for other financial institutions will be this big? Does this mean there will be more problems around calculation of so-called toxic assets? It's too early to say," said Tony Morriss at ANZ Bank in Sydney.

Management's future
Under the agreement, Citigroup does not have to replace chief executive Vikram Pandit and other top managers, but the government will be able to make decisions on their compensation.
CITIGROUP Citibank was founded in 1812 in New YorkIt has 200 million customer accounts It operates in 100 countries Source:Citigroup
Mr Pandit, who took the top job at Citigroup in January, has come under fire for failing to turn around the bank.
"You're seeing an inept management team being rewarded by the US government," said William Smith at Smith Asset Management in New York.
The bank will not be able to pay out more than 1 cent per share quarterly dividend. The dividend now stands at 16 cent per share.
Seeking to stabilise the financial system, the US government has bailed out Bear Stearns, Fannie Mae, Freddie Mac and American International Group and injected hundreds of billions of dollars into financial institutions.

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