Citigroup Bailout Reassures the Financial Market

With the US government helping Citigroup in the bailout process, shares of Citigroup climbed up by more than 50%. The US Treasury is ready to invest $20bn (£13.4bn) in return for favoured shares for the ailing Banking group. Loans and securities on Citigroup’s books have been guaranteed up to $306bn (£205bn) by the Treasury and Federal Deposit Insurance Corp.

The bailout of the Citigroup by the US government was received with positive results from the equity markets. The latest plan is followed with an investment of $25bn of public funds in the bank. Last week the shares of Citigroup plummeted more than 60% last week and its market value dropped to $20.5bn compared to $270bn in 2006.

The company announced an additional job cut of 52,000 worldwide in addition to the already announced 23,000 job cuts. Last year on account of financial global losses, the Citigroup lost about $20bn and experienced losses in four straight quarters.

The action plan was made public after meetings between the treasury department and the bank. Citigroup is one of the main banks of the US and operates in more than 100 countries. Analysts were of the opinion that the Citigroup was too large a financial institution to allow to fail. This action by the US government has helped in protecting taxpayer’s money and the US economy and most experts are of the opinion that this will help reduce the uncertainty prevailing in the market.

Though the markets are still waiting for the details, but at least for this time there is no need for the Citigroup to replace its chief executive Vikram Pandit and other senior level managers. However, the government will make its own decisions on the compensation package

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