The US federal government was nearing agreement Sunday night to rescue Citigroup by helping to remove billions of dollars in toxic assets from its balance sheet, reports the WSJ. The agreement, which could still fall apart, would mark a new phase in government efforts to stabilise US banks and securities firms. After injecting nearly $300bn of capital into financial institutions, US officials now seem willing to absorb bad assets from specific institutions. The Citi talks centre on the creation of a so-called “bad bank”, an outside entity to hold some of the group’s worst assets. Under the terms being discussed, Citi would agree to absorb losses on assets covered by the agreement up to a certain threshold. The US government would then absorb any additional losses. The new entity is expected to hold about $50bn of assets, said a person close to the talks. The FT meanwhile reports that another option for Citi would be to pursue a merger with another financial group, although the idea has become much riskier for potential partners amid deterioration in the credit markets. Citi’s board begun discussing alternatives after the group’s share price fell 60% last week, closing Friday at $3.77 a share, bringing its market value to about $20bn.

This entry was posted by Gwen Robinson on Monday, November 24th, 2008 at 5:05 and is filed under Capital markets. Tagged with citi. Edit this entry.