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Washington, D.C. - "Taxpayers are to invest $20 billion and to assume $249 billion in risk on Citigroup’s $306 billion portfolio of toxic assets. For this, taxpayers receive preferred stock with a face value of $27 billion (worth well less than $20 billion) and $2.7 billion worth of warrants.
Taxpayers are taking an enormous risk for a small share of the possible upside. Paulson should have gotten ten times the warrants. The agreement is a much better deal for Citigroup management and shareholders than it is for the taxpayers.
The American people are potentially on the hook for as much as $269 billion if the assets in the Citigroup portfolio prove to be worthless. They should have the opportunity to participate in much more of Citigroup’s upside if Citigroup returns to health.
The agreement does not require any changes in Citigroup’s management or board of directors. It allows payment of a dividend to shareholders of $.01 per share per quarter, currently an amount equal to about $54 million per quarter. While Citigroup must submit an executive compensation plan, including bonuses, to the Federal Government for its review and approval, there is nothing in the agreement that requires Citigroup to stop paying million-dollar-a-month pay packages to its executives.
I hope that President-elect Obama will take a fresh look at these issues and direct Treasury Secretary Designate Geithner to renegotiate this agreement when the new Administration takes office."
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On the $306 billion portfolio, Citigroup takes the risk on the first $29 billion. On the remaining $277 billion, taxpayers take 90% of the risk - $249 billion.
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