ft.com/alphaville

• Treasury and FDIC to guarantee $306bn of bad RMBS/ CMBS assets against losses.
• Citi will take the first $29bn of losses on the guaranteed portfolio, and thereafter losses will be shared - 90% taken by the government and 10% taken by Citi.
• Fed to provide non-recourse loan to fund Citi’s 10% losses as above, at OIS plus 300bps.
• Treasury to get $7bn of preference shares as a “fee” with 8% divi rate ($4bn to UST, $3bn to FDIC)
• In addition, Treasury will inject another $20bn in capital, buying further preference shares under the TARP programme.
• Management hold on to jobs.
• Citi prohibited from paying common stock dividends for next 3 years.

Terms in full here.

Statement released early this morning:

Joint Statement by Treasury, Federal Reserve, and the FDIC on Citigroup

Washington, DC — The U.S. government is committed to supporting financial market stability, which is a prerequisite to restoring vigorous economic growth. In support of this commitment, the U.S. government on Sunday entered into an agreement with Citigroup to provide a package of guarantees, liquidity access, and capital.

As part of the agreement, Treasury and the Federal Deposit Insurance Corporation will provide protection against the possibility of unusually large losses on an asset pool of approximately $306 billion of loans and securities backed by residential and commercial real estate and other such assets, which will remain on Citigroup’s balance sheet. As a fee for this arrangement, Citigroup will issue preferred shares to the Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk in the asset pool through a non-recourse loan.

In addition, Treasury will invest $20 billion in Citigroup from the Troubled Asset Relief Program in exchange for preferred stock with an 8% dividend to the Treasury. Citigroup will comply with enhanced executive compensation restrictions and implement the FDIC’s mortgage modification program.

With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy.

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 following principles guide our efforts:

We will work to support a healthy resumption of credit flows to households and businesses.
We will exercise prudent stewardship of taxpayer resources.
We will carefully circumscribe the involvement of government in the financial sector.
We will bolster the efforts of financial institutions to attract private capital.

For more detail, see the FT’s story.