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Citigroup rescue plan close at hand

The US Govt is close to finalising a rescue plan for Citigroup but the fate of its Indian-American CEO Vikram Pandit and other executives remains unclear.

business Updated: Nov 24, 2008 10:30 IST

The US government is close to finalising a rescue plan for Citigroup, whose stocks have been battered in recent days over worries about its financial health, but the fate of its Indian American CEO Vikram Pandit and other executives remains unclear, media reports said on Monday.

The rescue plan, according to the Wall Street Journal (WSJ), involves helping to remove billions of dollars in toxic assets from the embattled institution's balance sheet. But it cautioned, citing people familiar with the matter, that the plan was still under discussion and could fall apart.

The financial daily also said it wasn't yet known if Citigroup will have to make changes to its executive ranks, board or elsewhere inside the company in return for government assistance.

As Citigroup shares fell last week, reports circulated about the axe falling on Pandit even as he and other top executives insisted that the decline wasn't a threat because the company has plenty of capital.

By Friday, bank officials were hoping for a public expression of confidence from the government, believing that would help reassure clients and customers.

The talks Sunday centred on the creation of what is sometimes called a "bad bank" - an outside entity designed to hold some of a financial firm's worst assets. That structure would help Citigroup cleanse itself of billions of dollars in potentially toxic assets, the Journal said.

Under the terms being discussed with top Treasury Department and Federal Reserve officials, Citigroup would agree to absorb losses on assets covered by the agreement up to a certain threshold, it added.

The US government would then absorb any additional losses, the Journal said, suggesting the new entity is expected to hold about $50 billion of assets.

But if the government should have to take on the bigger losses, it would receive a stake in Citigroup, said the New York Times.

The proposed rescue plan could mark a third leg of the government's broader efforts to bolster the nation's financial industry, the influential daily said citing people briefed on the plan.

If approved, the plan could serve as a model for other banks, heralding another shift in the government's morphing financial rescue, it said.

The Treasury Department initially proposed buying troubled assets from banks but then reversed course and began injecting capital directly into financial institutions, it noted.

Behind the push is a broad effort to shore up faith in Citigroup, which saw its stock price fall 60 percent last week to a 16-year low. Citigroup has been pounded by mortgage-related losses.

In addition to $2 trillion in assets it has on its balance sheet, it has another $1.23 trillion in entities that aren't reflected there. Some of those assets are tied to mortgages and investors are worried they could cause heavy losses if they are brought back on the company's books.

The company has already received a $25 billion from the Treasury Department's $700 billion financial bailout programme. In return for the cash infusion, the government gets a partial ownership stake.

First Published: Nov 24, 2008 10:24 IST