Treasury announces new program: for “financial institution rescues similar to Citi Case”

Hank ‘Virgil Starkwell’ Paulson and the Gang who couldn’t shoot straight are trying another ‘program’, and it STILL isn’t directly addressing housing, yep.

From Forbes:

…In determining whether an institution is eligible for participation in the program, Treasury will consider the following:

-Whether destablization of the institution could directly or indirectly threaten the viability of creditors and counterparties.

- Whether the institution is at risk of a loss of confidence and how much stress is caused by unstable or illiquid assets.

- The number and size of other institutions in similar situations or the number of those that would be destabilized by the institution being considered for the program.

- The extent to which the institution’s financial position could potentially cause disruptions in credit markets, destabilize asset prices, increase uncertainty or weaken the overall economy.

- The extent to which the institution can access capital elsewhere.

As with other investments through EESA, Treasury may invest in any instrument it deems a troubled asset and will require institutions to provide Treasury with warrants or other considerations to protect taxpayer interests. Participating institutions will also be required to cap executive compensation and possibly limit expenditures….

Breaking from CNBC’s Steve Liesman (who also has a good discussion from SF here on topics at the Econ Assoc meeting):

Steve: Treasury had a comment period on this, right now because of some TARP accounting details, it pays for the Treasury to handle these ‘certain’ financial institution rescues a la Citi, BUT they see it as very very limited option…

for certain “Systemically Significant Institutions”….

Treasury to consider targeted asset guarantees, investments for institutions

To revisit how CITI was handled, visit our breakdowns here and here and Marketwatch’s take here

The key provisions of the Citi bailout include(d) the following:

• The Treasury will inject $20 billion of capital, on top of a $25 billion federal infusion that was already dispatched.
• The government will guarantee a roughly $306 billion pool of Citi’s troubled assets, including mortgage-backed securities. Citigroup must absorb the first $29 billion in losses and 10% of anything beyond that. Treasury will absorb the next $5 billion in losses, followed by the FDIC taking on the next $10 billion in losses.
• Any losses on bad assets beyond that level would be taken by the Fed. The guarantees will be for 10 years for residential assets and five years for nonresidential assets.
• Citi said it would issue $7 billion of preferred stock with an 8% dividend as payment for the guarantee.
• Citi said it would issue warrants to the Treasury and the FDIC for some 254 million common shares at a strike price of $10.61.
• The government must approve all executive compensation, including bonuses.
• Effective with the payment of the next dividend on common stock, Citi agreed not to pay out more than 1 cent a share for three years. See the Treasury’s statement.

January 2, 2009. Tags: CITI, CITI bailout, citigroup, Congressional Leadership, Currency, Fed, FEDERAL RESERVE, Finance, Hank Paulson, HOLC, Sheila Bair, Take the Money and Run, targeted asset guarantees, TARP, TIMOTHY GEITHNER, Treasury, Woody Allen. Economy, FDIC, Foreclosures, Housing, Politics, Unemployment Statistics, Wall St.