The reinforcement of the Government will allow it to display more than 9 Tier1 ratio

Not question to abandon his fate the second American commercial bank (after Bank of America). It was midnight minus five when Treasury, the Federal Reserve and the Federal Agency (FDIC) deposit American unveiled Sunday evening the Citigroup rescue plan. In addition to an injection of public funds of $ 20 billion in the capital of the Bank in distress, the Treasury and the FDIC will guarantee the assets at risk of Citigroup (ABS, CDOS and other structured products-backed real estate securities) to $ 306 billion. This manoeuvre unprecedented goal: stop the fall of the American Bank, which had already lost 60 of its capitalization in a week.

"We appreciate the considerable effort made by the Government to ensure the stability of the market", welcomed the President and CEO of Citigroup, Vikram Pandit, at the initiative of the Treasury. For him, the action of the authorities will allow restoring confidence and stem the fall of the course of Citigroup, while consolidating its solvency. The reinforcement of the Government will allow it to display more than 9 Tier-1 ratio. After the first injection of $ 25 billion of public funds in its capital, announced October 13, it is the second time in six weeks that Citigroup has governmental manna to stabilize its situation. It is not "a nationalization plan", however reported Citigroup CFO Gary Crittenden without excluding further capital increases.

Avoiding a scenario to the Lehman

Under the terms of the device on its website (), Treasury will invest $ 20 billion in Citigroup in exchange for preferred shares with dividend of 8. In addition, the protection guaranteed by the authorities against "the possibility of unusually large losses" on a pool of assets of $ 306 billion, which will remain in the accounts of Citigroup, will be also paid by "preferential shares granted to the Treasury and the Federal Deposit Insurance Agency". Citigroup will take in charge the losses of $ 29 billion already on this pool of assets at risk, but the Government is committed to cover the subsequent losses of 90. If necessary, the Fed says ready to grant a loan without guarantee to Citigroup for "residual risk associated with this pool of assets. "Through these initiatives, the US Government takes the necessary measures to strengthen the financial system and the protection of American taxpayers", summarizes the authorities in a joint statement.

The course of Citigroup rebounded yesterday morning from 56 to the announcement of these government guarantees. The muscular Treasury initiative a avoid the doomsday scenario which had led to the bankruptcy of Lehman Brothers on September 15. "If the Government had not responded, the potential damage would have exceeded the imagination", said a New York analyst persuaded that a dismantling of Citigroup shall not less in the order of the day, once "dust result." Before the intervention of federal authorities, the hypothesis of a recovery of all or part of Citigroup by Goldman Sachs or Morgan Stanley had begun to circulate. But neither one nor the other seem have expressed enthusiasm for the idea of a resumption of the bank balance sheets are heavily encumbered by its assets at risk and securitization vehicles inherited from the "era Prince."

No change of direction

Unlike of the bailout of insurer AIG or Fannie Mae and Freddie Mac mortgage credit specialists, the bailout of Citigroup does not redesign of the branch. But less than a year after his arrival, Vikram Pandit position remains fragile after that "oxygen balloon." Despite the momentary relief of Wall Street, the Government's plan was variously allowed by some investors who challenge its management. "We are witnessing the reward of an incompetent management team by the US Government," said including William Smith, Smith Asset Management Managing Director, shareholder of Citigroup. Especially, many analysts wondered on the precedent that may create the new plan to bailout to the rise of the concerns in the area of credit cards.