Citigroup Receives Substantial US Government Backing
Citigroup has secured a significant $326 billion support package from the US government—a sum equivalent to roughly one-third of the Indian economy. This substantial aid package comprises $306 billion in guarantees, designed to facilitate the sale of troubled assets and non-performing mortgages, along with a $20 billion cash injection from the US Treasury. This latest infusion comes on top of a previous $25 billion disbursement.
Leadership, Stock, and Market Reactions
Despite recent market turmoil, Citigroup CEO Vikram S. Pandit retains his position, at least for the present. As part of the agreement, the US government receives $27 billion in preferred stock with an 8% dividend yield. Last week's stock crash fueled speculation about Mr. Pandit's potential departure and a possible dismantling of Citigroup. The substantial rescue deal was swiftly orchestrated over the weekend to mitigate further market decline and prevent broader financial system paralysis. The intervention produced positive results, with the Dow Jones Industrial Average rising on Monday and European markets demonstrating 2% to 5% gains, buoyed by anticipation of President-elect Barack Obama's commitment to economic recovery and financial stability. However, the reaction in emerging markets with extensive Citigroup exposure was more restrained. Key Asian markets showed declines between 0.25% and 3%. Indian equities initially recovered from their day's lows following the Citi bailout news but ultimately closed on a subdued note.
Impact on Citi's Indian Operations
The reverberations of Citigroup's situation are reaching India. Among the recent senior-level departures is Brian Brown, former head of equities at Citigroup Global Markets India. Additionally, Citi Financial, the group's non-banking finance arm in India, which has been grappling with high delinquency rates, is set to obtain a $200 million capital infusion by March.
"After the stock crashed last week, there were speculations that Mr Pandit will have to quit and Citigroup may be sold in parts."