“Bad Bank” Solution for Citi

by Erin McCune on November 24, 2008

in Banking, Current Events, Regulatory Environment

Reports indicate that this afternoon Citi is close to an agreement with the government whereby losses due to risky assets on the bank's balance sheet would be limited. A new "bad bank" entity would be created to house approx. $50 billion in risky assets, by one estimate. The government would assume losses beyond a certain level, although as yet, that level has not been disclosed (they are still negotiating).

UPDATE 1: An agreement has been reached. The plan injects $20 billion in capital in addition to to guaranteeing $306 Billion in toxic debt. The press release is here and terms of the deal are here.

Via the WSJ

Under the plan, Citigroup and the government have identified a pool of
about $306 billion in troubled assets. Citigroup will absorb the first
$29 billion in losses in that portfolio. After that, three government
agencies — the Treasury Department, the Federal Reserve and the
Federal Deposit Insurance Corp. — will take on any additional losses,
though Citigroup could have to share a small portion of additional

Coverage (as of Sunday afternoon night):

UPDATE 2: NY Magazine's Daily Intel blog has a good round up of (mostly negative) responses to the Citi bailout here.

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