Troubled banking giant Citigroup gets bail out

The US government will inject $20 billion into troubled banking giant Citigroup and will provide a guarantee of $306 billion to the financial firm.

"The US government on Sunday entered into an agreement with Citigroup to provide a package of guarantees, liquidity access, and capital," the Federal Reserve said in a statement.

As per the rescue plan, the treasury would invest $ 20 billion in Citigroup from the Troubled Asset Relief Programme in exchange for preferred stock.

Besides, the Treasury and the Federal Deposit Insurance Corporation (FDIC) would provide protection against $ 306 billion of toxic loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup's balance sheet, the statement added.

"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," the release said.

The move comes close on the heels of the sliding 60 per cent fall in the share price of Citigroup last week.

"Citigroup will comply with enhanced executive compensation restrictions and implement the FDIC's mortgage modification program," the Federal Reserve added.

The Federal Reserve asserted that "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."

Once the world's most valued bank Citigroup, headed by NRI banker Vikram Pandit whose own job is reportedly under attack, had over 3,75,000 employees at the end of last year and it aims to trim it down to below three lakh, as part of efforts to cut costs and help the crisis-ridden bank return to normalcy.

Close to 25,000 jobs have already been axed so far this year.

The financial crisis, that began 15 months ago, is now taking toll and recent months have seen government taking over quasi-public mortgage firms Fannie Mae and Freddie Mae, bankruptcy of Lehman Brothers, sale of Merrill Lynch, rescue of American International Group among others.