Citigroup gets economical support from US government

Citigroup has got US government support of $326 billion, which is roughly equivalent to one-third of the Indian economy.

Citi has received US government guarantees of $306 billion, a cover that will help it sell the sticky assets and irrecoverable mortgages on its books, and a $20-billion cash infusion from the US Treasury, which is over and above the $25 billion it had received earlier.

Citigroup’s CEO Vikram S Pandit gets to keep his job, at least for now. However, the US government will get $27 billion of preferred stock, paying 8% dividend.

After the stock crashed last week, there were speculations that Mr Pandit will have to quit and Citigroup may be sold in parts. The biggest banking rescue deal was quickly cobbled together over the weekend before markets could further punish the scrip and paralyze the financial system. When trading resumed on Monday, the Dow was in the green. The European markets also cheered the state support for Citigroup and were up between 2% and 5%, amid expectations that president-elect Barack Obama will push for an unprecedented government role in reviving growth and stabilizing the financial system.

But many emerging markets, where Citi has a sizeable exposure, were more guarded in their response. Key Asian markets were down between 0.25% and 3%, while back home, Indian equities rebounded from their day’s lows on news of the Citi bailout package, but ended the day on a subdued note.

The distant shakeout in Citi is also creating ripples in India. Among the senior officials to quit in the past few days is Brian Brown, head of equities at Citigroup Global Markets India. Citi Financial, the group’s non-banking finance arm in India which has seen high delinquencies, will receive $200 million infusion by March.