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<DIV class=timestamp>November 24, 2008</DIV>
<DIV class=kicker></DIV>
<H1><NYT_HEADLINE type=" " version="1.0">U.S. Approves Plan to Help Citigroup
Cope With Losses </NYT_HEADLINE></H1><NYT_BYLINE type=" " version="1.0">
<DIV class=byline>By <A title="More Articles by Eric Dash"
href="http://topics.nytimes.com/top/reference/timestopics/people/d/eric_dash/index.html?inline=nyt-per">ERIC
DASH</A></DIV></NYT_BYLINE><NYT_TEXT>
<DIV id=articleBody>
<P><A title="More information about Citigroup Incorporated"
href="http://topics.nytimes.com/top/news/business/companies/citigroup_inc/index.html?inline=nyt-org">Citigroup</A>
will effectively halt dividend payments for the next three years and will also
agree to certain <A title="More articles about executive pay."
href="http://topics.nytimes.com/top/reference/timestopics/subjects/e/executive_pay/index.html?inline=nyt-classifier">executive
compensation</A> restrictions, which will be reviewed by regulators. It will
also put in place the F.D.I.C.’s loan modification plan, which is similar to one
it recently announced.</P>
<P>Federal regulators approved a radical plan to stabilize Citigroup in an
arrangement in <STRONG><FONT color=#ff0000 size=5>which the government could
soak up billions of dollars in losses</FONT></STRONG> at the struggling bank,
the government announced late Sunday night. President Bush said on Monday that
more such rescues could be arranged if they become necessary.</P>
<P>In pledging similar assistance, President Bush said, “We have made these kind
of decisions in the past, made one last night, and if need be we’re going to
make these kind of decisions to safeguard our financial system in the
future.”</P>
<P>Speaking from the steps of the Treasury Building with Secretary <A
title="More articles about Henry M. Paulson Jr."
href="http://topics.nytimes.com/top/reference/timestopics/people/p/henry_m_jr_paulson/index.html?inline=nyt-per">Henry
M. Paulson Jr.</A> beside him, the president said Mr. Paulson was working
closely with the transition team of President-elect <A
title="More articles about Barack Obama"
href="http://topics.nytimes.com/top/reference/timestopics/people/o/barack_obama/index.html?inline=nyt-per">Barack
Obama</A>, and that the new president would be kept informed. </P>
<P>“It’s important for the American people to know that there is close
cooperation,” Mr. Bush said.</P>
<P>The complex <A title="More articles about the credit crisis bailout plan."
href="http://topics.nytimes.com/top/reference/timestopics/subjects/c/credit_crisis/bailout_plan/index.html?inline=nyt-classifier">rescue
plan</A> calls for the government to back about $306 billion in loans and
securities and directly invest about $20 billion in Citigroup. The plan,
emerging after a harrowing week in the financial markets, is the government’s
third effort in three months to contain the deepening economic crisis and may
set the precedent for other multibillion-dollar financial rescues. </P>
<P>Citigroup executives presented a plan to federal officials on Friday evening
after a weeklong plunge in the company’s share price threatened to engulf other
big banks. In tense, round-the-clock negotiations that stretched until almost
midnight on Sunday, it became clear that the crisis of confidence had to be
defused now or the financial markets could plunge further. Citigroup shares were
up 66 percent on Monday, to $6.26.</P>
<P>Whether this latest rescue plan will help calm the markets is uncertain,
given the stress in the financial system caused by losses at Citigroup and other
banks. Each previous government effort initially seemed to reassure investors,
leading to optimism that the banking system had steadied. But those hopes faded
as the economic outlook worsened, raising worries that more bank loans were
turning sour.</P>
<P>Mr. Obama was also working over the weekend to shore up confidence in the
rapidly faltering economy. Mr. Obama signaled that he would pursue a far more
ambitious plan of spending and tax cuts than he had outlined during his campaign
and planned to announce his economic team on Monday. Some Democrats in Congress,
meantime, were calling for the government to spend as much as $700 billion to
stimulate the economy over the next two years. <A
title="More articles about the Federal Reserve System."
href="http://topics.nytimes.com/top/reference/timestopics/organizations/f/federal_reserve_system/index.html?inline=nyt-org">Federal
Reserve</A> Chairman <A title="More articles about Ben S. Bernanke"
href="http://topics.nytimes.com/top/reference/timestopics/people/b/ben_s_bernanke/index.html?inline=nyt-per">Ben
Bernanke</A> was involved during the discussions.</P>
<P>Mr. Obama’s expected choice for Treasury secretary, <A
title="More articles about Timothy F. Geithner."
href="http://topics.nytimes.com/top/reference/timestopics/people/g/timothy_f_geithner/index.html?inline=nyt-per">Timothy
F. Geithner</A>, the president of the <A
title="More articles about Federal Reserve Bank of New York"
href="http://topics.nytimes.com/top/reference/timestopics/organizations/f/federal_reserve_bank_of_new_york/index.html?inline=nyt-org">Federal
Reserve Bank of New York</A>, played a crucial role in the negotiations on
Friday but took a less active role once news of his appointment was circulated.
While the initial focus of government officials was to help the embattled
company, they may also seek to draw up an industrywide plan that could help
other banks. </P>
<P>The plan could herald another shift in the government’s financial rescue. The
Treasury Department first proposed buying troubled assets from banks but then
reversed course and began injecting capital directly into financial
institutions. Neither plan, however, restored investors’ confidence for
long.</P>
<P>“By intervening, they are giving the market some heart to temporarily stave
off some fear — but you can only push that so much,” said Charles R. Geisst, a
financial historian and professor at <A
title="More articles about Manhattan College"
href="http://topics.nytimes.com/top/reference/timestopics/organizations/m/manhattan_college/index.html?inline=nyt-org">Manhattan
College</A>.</P>
<P>Banking industry officials said the decision to support Citigroup, while
necessary, could draw a firestorm of criticism from smaller institutions that
were not big enough to be saved.</P>
<P>Under the agreement, Citigroup and regulators will back up to $306 billion of
largely residential and commercial real estate loans and certain other assets,
which will remain on the bank’s balance sheet. Citigroup will shoulder losses on
the first $29 billion of that portfolio. </P>
<P>Any remaining losses will be split between Citigroup and the government, with
the bank absorbing 10 percent and the government absorbing 90 percent. The
Treasury Department will use its bailout fund to assume up to $5 billion of
losses. If necessary, the <A
title="More articles about Federal Deposit Insurance Corp (FDIC)"
href="http://topics.nytimes.com/top/reference/timestopics/organizations/f/federal_deposit_insurance_corp/index.html?inline=nyt-org">Federal
Deposit Insurance Corporation</A> will bear the next $10 billion of losses.
Beyond that, the Federal Reserve will guarantee any additional losses.</P>
<P>In exchange, Citigroup will issue $7 billion of preferred stock to government
regulators. In addition, the government is buying $20 billion of preferred stock
in Citigroup. The preferred shares will pay an 8 percent dividend and will
slightly erode the value of shares held by investors.</P>
<P>Citigroup will effectively halt dividend payments for the next three years
and will also agree to certain executive compensation restrictions, which will
be reviewed by regulators. It will also put in place the F.D.I.C.’s loan
modification plan, which is similar to one it recently announced.</P>
<P>The government said it was taking the step to bolster the economy while
protecting taxpayers. “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,” the regulators said in a joint statement
Sunday.</P>
<P>Inside Citigroup’s Park Avenue headquarters, the mood was tense. Through the
weekend, <A title="More articles about Robert E. Rubin."
href="http://topics.nytimes.com/top/reference/timestopics/people/r/robert_e_rubin/index.html?inline=nyt-per">Robert
E. Rubin</A>, the former Treasury secretary and an influential executive and
director at Citigroup, held several discussions with Mr. Paulson.</P>
<P><A title="More articles about Vikram S. Pandit."
href="http://topics.nytimes.com/top/reference/timestopics/people/p/vikram_s_pandit/index.html?inline=nyt-per">Vikram
S. Pandit</A>, Citigroup’s chief executive, spoke to regulators and lawmakers.
Mr. Pandit also met with Citigroup’s board on Saturday, and there was no
indication that they would seek to replace him. </P>
<P>Once the nation’s largest and mightiest financial company, Citigroup lost
half its value in the stock market last week as the bank confronted a crisis of
confidence. Although Citigroup executives maintain the bank is sound, investors
worry that its finances are deteriorating. Citigroup has suffered staggering
losses for a year now, and few analysts think the pain is over. Many investors
worry that it needs more capital. </P>
<P>With more than $2 trillion in assets and operations in more than 100
countries, Citigroup is so large and interconnected that its troubles could
spill over into other institutions. Citigroup is widely viewed, both in
Washington and on Wall Street, as too big to be allowed to fail. </P>
<P>Citigroup executives reached out to the Federal Reserve and the Treasury last
week as they sought to stabilize the company’s stock. All major bank stocks have
been battered in recent weeks, including those of <A
title="More information about Bank of America Corp"
href="http://topics.nytimes.com/top/news/business/companies/bank_of_america_corporation/index.html?inline=nyt-org">Bank
of America</A>, <A
title="More information about Goldman Sachs Group Incorporated"
href="http://topics.nytimes.com/top/news/business/companies/goldman_sachs_group_inc/index.html?inline=nyt-org">Goldman
Sachs</A>, <A title="More information about Morgan, J. P., Chase & Company"
href="http://topics.nytimes.com/top/news/business/companies/morgan_j_p_chase_and_company/index.html?inline=nyt-org">JPMorgan
Chase</A> and <A title="More information about Morgan Stanley"
href="http://topics.nytimes.com/top/news/business/companies/morgan_stanley/index.html?inline=nyt-org">Morgan
Stanley</A>. </P>
<P>Citigroup’s shares have been hit particularly hard. A year ago they were
trading at about $30; on Friday they closed at $3.77.</P>
<P>The plan under discussion is reminiscent of the one that Citigroup and the
F.D.I.C. worked out in October with Citigroup’s proposal to buy the <A
title="More information about Wachovia Corp"
href="http://topics.nytimes.com/top/news/business/companies/wachovia_corporation/index.html?inline=nyt-org">Wachovia
Corporation</A>. That deal fell through, however, when <A
title="More information about Wells Fargo & Co"
href="http://topics.nytimes.com/top/news/business/companies/wells_fargo_and_company/index.html?inline=nyt-org">Wells
Fargo</A> swept in with a higher offer. </P>
<P>Under that plan, Citigroup agreed to bear a certain level of Wachovia’s
losses, with the federal agency absorbing the rest. In exchange, Citigroup
agreed to give the F.D.I.C. preferred stock. </P>
<P>It is also similar to an effort orchestrated by Swiss financial regulators
for <A title="More information about UBS AG."
href="http://topics.nytimes.com/top/news/business/companies/ubs_ag/index.html?inline=nyt-org">UBS</A>,
another big global bank. Last month, the Swiss central bank and UBS reached an
agreement to transfer as much as $60 billion of troubled securities and other
assets from UBS’s balance sheet to a separate entity. </P><NYT_AUTHOR_ID>
<DIV id=authorId>
<P>Gretchen Morgenson, Louise Story and David Stout contributed
reporting.</P></DIV></NYT_AUTHOR_ID></DIV></NYT_TEXT></FONT></DIV></BODY></HTML>