MercoPress. South Atlantic News Agency

US gov. guarantees Citigroup mortgages and injects cash

The US government will guarantee $306bn of Citigroup's problem mortgages and other assets, and will also give the banking giant a $20bn cash injection after a collapse in its share price.

In return for the cash and guarantees, the US government will get $27bn of preferred shares in the bank, paying an 8pc dividend. The US Government officials said the driving reason behind the rescue was to try to restore confidence in the financial system and in big US financial institutions. Speaking to reporters in the early hours of this morning after the dramatic rescue was announced, officials said that Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke had worked with officials throughout the weekend to get the package in place. Citigroup's shares dropped 60pc last week, and the government finally intervened after mounting concern the rapid decline could prompt a run on the bank, which has $2 trillion of assets and operations in more than 100 countries. At the end of last week, the company had not seen customers attempting to withdraw funds or cut trading lines, as happened to both Bear Stearns and Lehman Brothers before they collapsed earlier this year. The latest $20bn injection follows the $25bn Citi received last month under the government's banking bail-put plan, called the Troubled Asset Relief Program. Over the weekend, Citigroup was understood to have approached its existing sovereign wealth fund shareholders from the Middle East and Asia to gauge their appetite for buying additional stakes in the bank, as well as holding talks with the US government. Chief Executive Officer Vikram Pandit told staff last week there were no plans to break up the company, and also ruled out the sale of the Smith Barney brokerage unit. The bank did announce plans to cut a further 52,000 jobs globally and also said it would take about $80bn (£54bn) of so-called toxic assets onto its balance sheet. Citigroup's board, led by Chairman Win Bischoff and independent director Richard Parsons, also met last week to discuss the bank's options. Citigroup issued a statement last week saying it has "a very strong capital and liquidity position and a unique global franchise."