Monday, November 24, 2008

CITIGROUP BAILOUT: It's Up To $306 Billion in Guarantees Plus Equity Infusion

The United States government will guarantee up to $306 billion of Citigroup assets, as part of a major bailout of Citi.

In addition, Citi will receive a capital injection of $20 billion. As part of the capital injection, the U.S. government will receive warrants exercisable at $10.61 on 254 million shares. Given the stock closed Friday at $3.77, this is a non-dilutive deal on a per share price basis for Citi shareholders.

THIS IS THE FIRST DEAL DONE BY THE GOVERNMENT WHERE SHAREHOLDERS HAVE NOT BEEN FORCED TO TAKE HUGE HITS ON THEIR STOCK POSITIONS. Freddie and Fannie shareholders are likely to lose everything. Lehman Brothers is in bankruptcy and Bear Stearns shareholders received less than 50% of the closing price on the last day Bear Stearns traded before the government rescue. In this deal, if the warrants are exercised, the government will pay more than 280% above the closing price on Friday.

It pays to be the Robert Rubin wing of Goldman Sachs.

UPDATE: Unlike Freddie, Fannie, Bear and Lehman, no one at Citi in senior management will lose their jobs. Bobby R. has their back.


  1. Dang RW, another nice call. BTW, what was your take on the brief window when they apparently were considering buying the assets directly from Citi?

  2. Bob,

    This s pretty close to that, even worse.

    By guaranteeing the assets, Citi gets to keep any stuff that turns out good, and the gov gets to buy all the junk.

  3. so, if Citi goes bankrupt, will that cancel out the small fortune worth's of debt I have stored up on my trusty Citi-card?