U.S. Invests $20 Billion In Ailing Citigroup
STEVE INSKEEP, host:
It's Morning Edition from NPR News. Renee Montagne is away. I'm Steve Inskeep. Good morning. The last federal rescue of Citigroup apparently was not enough. So last night, the government said it will do more. The giant banking company will receive billions in federal money on top of $25 billion already committed. At least, that's the plan after the company lost more than half its stock value last week alone. NPR's Jim Zarroli is covering this story, and joins us once again from New York. Jim, good morning.
JIM ZARROLI: Good morning, Steve.
INSKEEP: So, how many billions this time?
ZARROLI: This was, sort of, hashed out over the weekend. And the government has basically agreed to guarantee more than $300 billion in Citigroup's risky assets. The Federal Reserve would absorb most of that, then the Treasury Department and the Federal Deposit Insurance Corporation. Citigroup will have to absorb up to $56 billion worth of the losses itself. Now, the government is also giving Citigroup another $20 billion in capital from that big $700 billion troubled asset relief program that was approved by Congress. That's, as you pointed out, that's in addition to the $25 billion that it has already gotten. Now, the government is going to get $6 billion worth of preferred shares in the company that pay an eight percent dividend. So, it will take a stake in the company. Now, so, all of this is some of the same elements we've seen in other cases, you know, both direct capital injections and loan guarantees.
INSKEEP: Jim, as you know, this is not the first time that the federal government has had to act on a weekend in apparently emergency conditions. And I guess I'd like to know, why that happened with the company that was just saying last week to it's employees that its finances were solid?
ZARROLI: Yeah, it's like a lot of bank. Citigroup lost money, you know, in all the mortgage-backed securities when they started to go down. It's been trying for a long time to clean up its balance sheet. Citigroup also does a lot of business overseas, so, you know, it has suffered in this big global economic downturn that we're seeing. These are problems that a lot of banks are facing, but Citigroup has a special kind of confidence problem with investors. A lot of investors just don't think it's been well-managed. And that really intensified this fall when Citigroup's merger with Wachovia fell apart, and since then, its stock has just been plummeting. It was down to below $4 a share on Friday. And when a company share price falls that much, it has a lot of trouble raising money. You know, Citigroup always said, you know, our balance sheet is fine, but with shares falling, it really had to respond.
INSKEEP: We're talking with NPR's Jim Zarroli about the federal government plan to send another $20 billion to Citigroup. And Jim, I think some people may be asking a question about fairness, because you said, this is a company that some investors think has been poorly managed, and yet now there's been $45 billion plus loan guarantees and another benefits sent to Citigroup, which is a good deal larger than the amount that the entire auto industry was asking for last week, and they were rejected.
ZARROLI: Yeah, yeah. Well, you know, there has always been kind of a ad hoc nature to the government's response in this crisis. You know, officials have had to sort of make it up as they go along, and that means they've had to decide who was worth saving and who wasn't. I mean, they're kind of having to pick winners and losers, and they will admit that, you know, they're having to think on their feet. And that's meant, you know, pursuing one course sometimes and then changing it. Citigroup is a really important part of the financial sector. You know, it's a bank with a lot of ties to a lot of different parts of the financial industry, and I think it was - just felt like the government had to step in. To watch its share price fall as much as it has been falling, you know, it was just the sort of thing that would have left investors really scared. So regulators felt like they - in this case anyway, they had to step in and do something.
INSKEEP: Jim, thanks.
ZARROLI: You're welcome, Steve.
INSKEEP: NPR's Jim Zarroli has the latest news for us on Citigroup, which is getting more federal assistance.