Government to take 36% Ownership of Citigroup

February 27, 2009 12:00:00 AM PST
The federal government is ramping up its life support for Citigroup. The government is taking a large stake in the bank giant, in another major effort to stem its huge losses.The deal is done.

Friday the U.S. Treasury announced it will convert up to $25-billion dollars in bailout money into regular Citigroup shares equaling a 36 percent stake in the bank. The agreement hinges on Citigroup finalizing similar deals with private investors and reshuffling the bank's board adding more independent directors.

It's the third time in five months the federal government has come to Citigroup's rescue but the deal won't increase the amount of assistance it gets.

Bank of America, another that received a large taxpayer bailout, is facing its own battles.

Thursday, CEO Ken Lewis testified for more than four hours at the offices of New York Attorney General Andrew Cuomo about the $3.6 billion dollars in bonuses handed out to Merrill Lynch executives just before its merger with Bank of America. "I'm here to answer questions and give clarity," said Lewis.

Lewis allegedly refused to name which executives received bonuses. "We therefore tonight at the deposition served Bank of America with a subpoena for that information and we intend to get it by whatever means we deem necessary going forward," said N.Y. Attorney General Benjamin Lawsky.

Both banks and many others will be undergoing so-called "stress tests" by the treasury to assess their viability should the economy continue to spiral; and with good reason, fourth quarter reports reveal U.S. banks have taken a beating losing just over $26-billion dollars the first quarterly deficit in 18 years.

The banking crisis is partly reflected in the latest G.D.P. numbers. U.S. economic activity shrank by 6.2 percent in the fourth quarter, much faster than analysts expected.

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