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US government rides to Citigroup's rescue

The US government stepped in yesterday (November 23rd) to save the troubled financial services firm Citigroup with a bailout package worth over $320 billion.

Under the agreement, the Treasury and the Federal Deposit Insurance Corporation (FDIC) will protect against "unusually large losses" on an asset pool containing around $306 billion in loans and mortgage-backed securities.

In return for this protection, Citigroup will issue preferred shares to the Treasury and FDIC. If necessary, the US central bank, the Federal Reserve, will step in to backstop any residual risk in Citigroup's asset pool with a non-recourse loan.

Furthermore, Citigroup will receive $20 billion in fresh capital under the Treasury's Troubled Asset Relief Program, or Tarp, in exchange for preferred stock that gives the department an eight percent dividend.

In a joint statement, the Fed, the Treasury and the FDIC said: "With these transactions, the US government is taking the actions necessary to strengthen the financial system and protect US taxpayers and the US economy."

Citigroup CEO Vikram Pandit noted his appreciation for the "tremendous effort by the government to assure market stability."

Last week, Citigroup announced 52,000 job cuts.