SIGTARP 11-002 January 13, 2011 

 

Extraordinary Financial Assistance 

Provided to Citigroup, Inc. 
Office of the special inspector general 

 For the Troubled Asset Relief Program 

1801 L Street, NW 

Washington, D.C. 20220 

SIGTARP 11-002 January 13, 2011 

January 13, 2011 

MEMORANDUM FOR: The Honorable Timothy F. Geithner, Secretary of the Treasury 

The Honorable John Walsh, Acting Comptroller of the Currency 

The Honorable Sheila C. Bair, Chairman, Board of Directors of the 

Federal Deposit Insurance Corporation 

The Honorable Ben Bernanke, Chairman, Board of Governors of 

the Federal Reserve System 

FROM: Neil M. Barofsky – Special Inspector General for the Troubled 

Asset Relief Program 

SUBJECT: Extraordinary Financial Assistance Provided to Citigroup, Inc. 

(SIGTARP-11-002) 

We are providing this audit report for your information and use. It discusses the basis for the 

decision to provide Citigroup, Inc. (“Citigroup”) with additional Government assistance under 

the Targeted Investment Program (“TIP”) and Asset Guarantee Program (“AGP”); how the AGP 

asset pool was determined; and the basis for the decision to permit Citigroup to terminate the 

AGP and repay its TIP capital infusion. The Office of the Special Inspector General for the 

Troubled Asset Relief Program conducted this audit under the authority of Public Law 110-343, 

as amended, which also incorporates the duties and responsibilities of inspectors general of the 

Inspector General Act of 1978, as amended. 

The Department of the Treasury and the Federal Deposit Insurance Corporation provided us 

formal written comments to the draft of this report. The comments are addressed in the report, 

where applicable, and copies of the agencies’ responses to the audit are included in the 

Management Comments section of this report, in Appendix L. 

We appreciate the courtesies extended to our staff. For additional information on this report, 

please contact Mr. Kurt Hyde (kurt.hyde@do.treas.gov / 202-622-4633), or Mr. Clayton Boyce 

(clayton.boyce@do.treas.gov / 202-622-9257). 
 

January 13, 2011 

Extraordinary Financial Assistance Provided to Citigroup, Inc. 

What SIGTARP Found 

In November 2008, worried that Citigroup would fail absent a strong statement of 

support from the U.S. Government, and that such failure could cause catastrophic 

damage to the economy, federal officials decided to rescue one of the largest 

financial institutions in the world. Late on November 23, 2008, following a frantic 

few days dubbed “Citi Weekend,” Citigroup agreed to a Government proposal that 

would provide Citigroup asset guarantees and a $20 billion capital infusion in 

exchange for preferred shares of Citigroup stock. The essential purpose of the deal, 

as then-Treasury Secretary Henry Paulson and then-Federal Reserve Bank of New 

York President Timothy F. Geithner later confirmed to SIGTARP, was to assure the 

world that the Government was not going to let Citigroup fail. 

SIGTARP found that the Government constructed a plan that not only achieved the 

primary goal of restoring market confidence in Citigroup, but also carefully 

controlled the risk of Government loss on the asset guarantee. The Government 

summarily rejected Citigroup’s initial proposal and made a take-it-or-leave-it offer 

that Citigroup only reluctantly accepted, against the advice of Citigroup insiders who 

considered the Government’s terms too expensive in light of the assistance provided. 

In the end, Citigroup accepted the deal chiefly because of its expected impact on the 

market’s perception of Citigroup’s viability. 

After the deal was announced, that impact was immediate: Citigroup’s stock price 

stabilized, its access to credit improved, and the cost of insuring its debt declined. 

And while the transactions hardly solved all of Citigroup’s problems – just months 

later the Government was compelled to significantly restructure its ownership 

interest in a manner that left it as Citigroup’s single largest common stockholder – 

the Government incurred no losses, and even profited on its overall investment in 

Citigroup by more than $12 billion. 

Nevertheless, two aspects of the Citigroup rescue bear noting. 

First, the conclusion of the various Government actors that Citigroup had to be saved 

was strikingly ad hoc. While there was consensus that Citigroup was too 

systemically significant to be allowed to fail, that consensus appeared to be based as 

much on gut instinct and fear of the unknown as on objective criteria. Given the 

urgent nature of the crisis surrounding Citigroup, the ad hoc character of the systemic 

risk determination is not surprising, and SIGTARP found no evidence that the 

determination was incorrect. 

Nevertheless, the absence of objective criteria for reaching such a conclusion raised 

concerns about whether systemic risk determinations were being made fairly and 

with consistent criteria. Such concerns could be addressed at least in part by the 

development, in advance of the next crisis, of clear, objective criteria and a detailed 

road map as to how those criteria should be applied. Treasury Secretary Timothy F. 

Geithner told SIGTARP that he believed creating effective, purely objective criteria 

for evaluating systemic risk is not possible, saying “it depends too much on the state 

of the world at the time. You won’t be able to make a judgment about what’s 

systemic and what’s not until you know the nature of the shock” the economy is 

undergoing. He also said that whatever objective criteria were developed in advance, 

markets and institutions would adjust and “migrate around them.” 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank 

Act”) charged the Financial Stability Oversight Council (“FSOC”) with 

responsibility for developing the specific criteria and analytical framework for 

assessing systemic significance. That process is under way. 

Summary of Report: SIGTARP-11-002 

Why SIGTARP Did This Study 

On October 3, 2008, the Emergency Economic 

Stabilization Act of 2008 (“EESA”) created the 

Troubled Asset Relief Program (“TARP”) and 

provided the Secretary of the Treasury with the 

authority and facilities to restore liquidity and 

stability to the U.S. financial system. Section 102 of 

EESA required that if the Treasury Secretary 

established an asset purchase program, a program 

must also be established to guarantee troubled assets. 

At the time of enactment of EESA, Citigroup, Inc. 

(“Citigroup”) was one of the largest financial 

institutions in the world. On October 28, 2008, the 

Department of the Treasury (“Treasury”) announced 

Citigroup and eight other financial institutions as the 

first recipients of TARP funds through the Capital 

Purchase Program (“CPP”), which was intended, in 

part, to “encourage U.S. financial institutions to build 

capital to increase the flow of financing to U.S. 

business and consumers and to support the U.S. 

economy.” This program provided Citigroup $25 

billion – the maximum amount that Treasury said it 

would invest in any one institution under CPP. 

However, Citigroup suffered significant instability 

shortly after receiving the initial $25 billion TARP 

investment. On November 23, 2008, Treasury, the 

Federal Reserve Board (“FRB”), and the Federal 

Deposit Insurance Corporation (“FDIC”) announced 

a package of transactions intended to reduce the risk 

of Citigroup failing and dragging down the rest of 

the financial system with it. As part of the package, 

the Government said that it would provide 

guarantees in connection with a Citigroup asset pool 

of up to $306 billion (that number was later adjusted 

to $301 billion). The announcement also promised 

Citigroup an additional $20 billion in TARP funds in 

return for additional shares of preferred stock and 

warrants. On January 2, 2009, Treasury gave titles to 

these already announced assistance transactions: the 

asset pool was named the Asset Guarantee Program 

(“AGP”) and the additional capital assistance was 

named the Targeted Investment Program (“TIP”). 

As part of SIGTARP’s continuing oversight of 

TARP, and to respond to a request from former 

Congressman Alan Grayson, SIGTARP performed a 

review of the U.S. Government’s decision to provide 

additional funding and asset guarantees to Citigroup. 

SIGTARP’s reporting objectives for this audit were 

to determine: (1) the basis for the decision to provide 

Citigroup with additional Government assistance; 

(2) how the asset guarantee pool was determined; 

and (3) the basis for the decision to permit Citigroup 

to terminate its AGP agreement and repay TIP.

SIGTARP 

Office of the Special Inspector General 

for the Troubled Asset Relief Program 
SIGTARP remains convinced that even if some aspects of systemic significance are 

necessarily subjective and dependent on the nature of the crisis at the time, an 

emphasis on the development of clear, objective criteria in advance of the next crisis 

would significantly aid decision makers burdened by enormous responsibility, 

extreme time pressure, and uncertain information. It is also imperative that FSOC not 

simply accept the adaptability of Wall Street firms to work around regulation, but 

instead maintain the flexibility to respond in kind. 

Second, the Government’s actions with respect to Citigroup undoubtedly contributed 

to the increased moral hazard that has been a direct byproduct of TARP. While the 

year-plus of Government dependence left Citigroup a stronger institution than it had 

been, it remained, and arguably still remains, an institution that is too big, too 

interconnected, and too essential to the global financial system to be allowed to fail. 

When the Government assured the world in 2008 that it would not let Citigroup fail, it 

did more than reassure troubled markets – it encouraged high-risk behavior by 

insulating risk takers from the consequences of failure. 

Unless and until institutions like Citigroup can be left to suffer the full consequences 

of their own folly, the prospect of more bailouts will potentially fuel more bad 

behavior with potentially disastrous results. Notwithstanding the passage of the 

Dodd-Frank Act, which does give FDIC new resolution authority for financial 

companies deemed systemically significant, the market still gives the largest financial 

institutions an advantage over their smaller counterparts by enabling them to raise 

funds more cheaply, and enjoy enhanced credit ratings based on the assumption that 

the Government remains as a backstop. And because of the prospect of another 

Government bailout, executives at such institutions might be motivated to take greater 

risks than they otherwise would. 

The Dodd-Frank Act was intended in part to address the problem of 

institutions that are “too big to fail.” Whether it will successfully address the 

moral hazard effects of TARP remains to be seen, and there is much 

important work left to be done. As Secretary Geithner told SIGTARP, while 

the Dodd-Frank Act gives the Government “better tools,” and reduced the 

risk of failures, “[i]n the future we may have to do exceptional things again” 

if the shock to the financial system is sufficiently large. Secretary Geithner’s 

candor about the prospect of having to “do exceptional things again” in such 

an unknowable future crisis is commendable. At the same time, it 

underscores a TARP legacy, the moral hazard associated with the continued 

existence of institutions that remain “too big to fail.” It also serves as a 

reminder that the ultimate cost of bailing out Citigroup and the other “too big 

to fail” institutions will remain unknown until the next financial crisis occurs. 

SIGTARP 

Office of the Special Inspector General 

for the Troubled Asset Relief Program 

Treasury provided an official written response 

to this audit report in a letter dated January 12, 

2011, which is reproduced in full in Appendix 

L. Treasury’s response broadly concurred with 

the report. FDIC provided an official written 

response to this audit report in a letter dated 

January 12, 2011. FDIC’s letter offers four 

“clarifications” to the report. While SIGTARP 

has not incorporated FDIC’s suggested changes, 

the letter is reproduced in full in Appendix L. 

FRB stated that it intends to provide an official 

written response in the near future, a copy of 

which, if available, will be included in 

SIGTARP’s upcoming Quarterly Report and 

will be added to the online version of this audit 

report. OCC stated that it would not be 

providing a formal response. 
Table of Contents 

Introduction ................................................................................................................................................. 1 

Background ................................................................................................................................................. 4 

Stock Price Declines and Increases in CDS Spreads Trigger a Potential Run ........................................... 8 

A Run on Citigroup Becomes a Possibility ........................................................................................... 10 

Counterparties Pull Back from Citigroup .............................................................................................. 11 

Citigroup Declared a ‘Systemic Risk’ ...................................................................................................... 13 

Saving Citigroup at All Costs ................................................................................................................ 13 

Systemic Risk Determination Process ................................................................................................... 13 

FRB Assesses Citigroup’s Systemic Risk ............................................................................................. 13 

FDIC Assesses Citigroup’s Systemic Risk ............................................................................................ 14 

Treasury Determines Citigroup Is a Systemic Risk............................................................................... 15 

Citigroup’s Proposal and the Federal Regulators’ Response During Citi Weekend ................................ 17 

Government Response ........................................................................................................................... 19 

Government Guarantee of Distressed Assets ........................................................................................ 19 

Additional Capital Injection .................................................................................................................. 21 

Citigroup Receives the Government’s Term Sheet ............................................................................... 22 

Continuing Concerns About Citigroup .................................................................................................. 23 

Changes to the Guaranteed Portfolio and Conversion of the Government’s Preferred Stock .................. 25 

Citigroup’s Rationale for Including Specific Assets ............................................................................. 27 

Confirmation Process Finalizes the Asset Pool ..................................................................................... 29 

Citigroup and Treasury Agree to Exchange Preferred Securities for Common and Trust Preferred 

Securities ............................................................................................................................................... 30 

Citigroup’s Request to Leave TIP and AGP ............................................................................................. 33 

Factors Leading to Citigroup’s Proposal for TARP Redemption.......................................................... 34 

Stress Test Results and Resulting Repayment Proposal ........................................................................ 35 

TARP’s Remaining Citigroup Investment ............................................................................................ 38 

Conclusions ............................................................................................................................................... 41 

Management Comments and Audit Response .......................................................................................... 45 

Appendix A − Scope and Methodology ................................................................................................... 46 

Appendix B − Citigroup TARP Capital Changes ..................................................................................... 49 

Appendix C − Governance and Asset Management Guidelines ............................................................... 50 

Appendix D − Joint Statement by Treasury, Federal Reserve and FDIC on Citigroup............................ 51 

Appendix E – Glossary ............................................................................................................................. 52 
Appendix F − Definitions of Acronyms ................................................................................................... 56

Appendix G − Capital Raise Press Release .............................................................................................. 57 

Appendix H – Citigroup Entities .............................................................................................................. 58 

Appendix I – Citigroup Initial Proposal (November 22, 2008) ................................................................ 59

Appendix J – Government’s Term Sheet (November 23, 2008) .............................................................. 60 

Appendix K − Audit Team Members ....................................................................................................... 64 

Appendix L – Management Comments from Treasury, FDIC, and FRB ................................................. 65 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 1

 

Introduction 

On October 3, 2008, the Emergency Economic Stabilization Act of 2008 (“EESA”) was signed into law. It 

provided the Secretary of the Treasury with the authority and facilities to restore liquidity and stability to the 

U.S. financial system, and included up to $700 billion under the Troubled Asset Relief Program (“TARP”). 

Section 101 of EESA authorized the Treasury Secretary to purchase troubled assets from any financial 

institution under terms, policies, procedures, and conditions determined by the Secretary. Section 102 of 

EESA required that if the Treasury Secretary established an asset purchase program, a program must also be 

established to guarantee troubled assets. 

At the time of the enactment of EESA, Citigroup, Inc. (“Citigroup”) was one of the largest financial 

institutions in the world. Specifically, as detailed by the Federal Reserve Board (“FRB”):1

 As of September 30, 2008, Citigroup, including its insured depository institution subsidiaries, was 

the second-largest banking organization in the United States and had total consolidated assets of 

slightly more than $2 trillion. Citigroup’s lead subsidiary bank, Citibank, N.A. (“Citibank”), had 

total consolidated assets of approximately $1.2 trillion, making it the third-largest U.S. depository 

institution as measured by total assets. Citigroup held more than $794 billion of deposits at the end 

of the third quarter of 2008, making it one of the largest deposit holders in the world. Of that 

amount, domestic deposits totaled more than $277 billion, of which $175.4 billion was not insured 

by the Federal Deposit Insurance Corporation (“FDIC”). Citigroup’s uninsured domestic deposits 

exceeded the uninsured deposits at all but two other U.S.-insured depository institutions. Citigroup 

held a large amount of foreign deposits and performed consumer banking across the globe in more 

than 100 countries.2

 Citigroup was a major supplier of credit in the United States and abroad. At the time, it was the 

largest consumer finance lender in the world, the third-largest mortgage servicer, the fourth-largest 

student lender, and the world’s largest credit card lender.3 Citigroup had more than $785 billion of 

loans outstanding at the end of the third quarter of 2008, with nearly $450 billion of them at its U.S. 

offices. Its domestic loans included more than $225 billion of residential real estate loans, almost 

$100 billion of consumer loans, more than $50 billion of commercial and industrial loans, and more 

than $10 billion of commercial real estate loans. FRB also stated that Citigroup was a major 

securitizer of credit and had an interest in $1.2 trillion in special purpose vehicles4

 (“SPVs”), of 

which $718 billion was related to consumer credit. 

 

1

 FRB documented Citigroup’s size and systemic significance in a letter from FRB Chairman Ben Bernanke to then-Treasury 

Secretary Henry Paulson, dated December 2, 2008, in which Chairman Bernanke recommended Secretary Paulson invoke a 

systemic risk exception for Citigroup, which would permit the extraordinary assistance to Citigroup detailed in this report, and 

in an FRB memo dated December 3, 2008, and titled, “Considerations Regarding Invoking the Systemic Risk Exception for 

Citibank, N.A.” 

2

 According to Citigroup officials, more than 74% of Citigroup’s 2008 total net revenue was derived from foreign assets. 

3

 Figures as of November 2008. 

4

 A special purpose vehicle is an off-balance-sheet legal entity that holds the transferred assets presumptively beyond the reach of 

the entities providing the assets, and is legally isolated. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 2

 

 Citigroup had significant amounts of commercial paper and long-term senior and subordinated debt 

outstanding, and was a major participant in numerous domestic and international payment, clearing, 

and central counterparty arrangements. 

 Citigroup provided a wide range of investment banking, capital markets, asset management, and 

retail brokerage services through its subsidiary Citigroup Global Capital Markets, Inc. Citigroup’s 

brokerage arm, Smith Barney, was one of the largest in the United States by the end of the third 

quarter of 2008, with $1.55 trillion in client assets in 9.2 million accounts. 

 Citigroup was also a major player in a wide range of derivatives markets, both as a counterparty to 

over-the-counter trades and as a broker and clearing firm for trades on exchanges. At the end of the 

third quarter of 2008, the notional principal value of its derivatives positions was more than 

$35 trillion, the bulk of which was held by its Citibank, N.A., subsidiary. 

 Citigroup also operated its Global Transaction Services (“GTS”) unit, a wholly owned subsidiary 

that had a presence in more than 100 countries and handled more than $3 trillion in transactions 

around the world each day for hundreds of corporations and dozens of governments and agencies, 

including the Federal Reserve. It is still the world’s largest provider of foreign currency exchange 

services and holds large deposits for several Fortune 500 companies. 

On October 28, 2008, Citigroup and eight other financial institutions became the first recipients of TARP 

funds through the Capital Purchase Program (“CPP”),5

 which was intended, in part, to “encourage U.S. 

financial institutions to build capital to increase the flow of financing to U.S. business and consumers and to 

support the U.S. economy.” This program provided Citigroup $25 billion – the maximum amount that 

Treasury said it would invest in any one institution under CPP.6 This would not be the last time that 

Citigroup benefited from TARP funds. 

Government officials told the Office of the Special Inspector General for the Troubled Asset Relief Program 

(“SIGTARP”) that the financial health of the first nine institutions selected to receive CPP funds was not a 

primary factor in the institutions’ selection, though Government officials made several references to the 

health of the nine institutions at the time. On October 14, 2008, for example, then-Treasury Secretary 

Henry Paulson stated that the nine “are healthy institutions, and they have taken this step for the good of the 

U.S. economy. As these healthy institutions increase their capital base, they will be able to increase their 

funding to U.S. consumers and businesses.” A joint statement released by Secretary Paulson, FRB 

Chairman Ben Bernanke, and FDIC Chairman Sheila Bair on October 14, 2008, similarly stated that “these 

healthy institutions are taking these steps to strengthen their own positions and to enhance the overall 

performance of the U.S. economy.” 

However, Citigroup’s health would soon come into question. Indeed, Citigroup suffered significant 

instability shortly after receiving the initial $25 billion TARP investment. Citigroup would lose 

 

5

 Bank of America and Merrill Lynch were in the process of merging when CPP was announced. Through CPP, $15 billion was 

immediately invested in Bank of America and $10 billion was pledged to Merrill Lynch, with the agreement that Bank of 

America would receive those funds on consummation of the merger. The merger received regulatory approval on 

November 26, 2008, and was completed on January 1, 2009. 

6

 JPMorgan Chase & Co., Bank of America Corporation, and Wells Fargo & Company each also received the maximum of 

$25 billion in CPP. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 3

 

$27.68 billion in 2008, and by November 19, 2008, its stock price had dropped precipitously. In the view of 

Secretary Paulson, the company was teetering on the brink of failure. The company’s survival was in doubt, 

and the Government, through TARP and other means, stepped in to save one of the world’s largest financial 

institutions. On November 23, 2008, Treasury, FRB, and FDIC announced a package of transactions 

intended to reduce the risk of Citigroup failing and, in turn, dragging down the financial system with it (see 

Appendix D). As part of the announced package, the Government said that it would provide guarantees in 

connection with a Citigroup asset pool of up to $306 billion.7 Treasury, in a report to Congress, said that 

extending the asset guarantee, which was not executed until January 15, 2009, was “part of a broader effort 

to support Citigroup as the company executes its restructuring plans.” The announcement also promised 

Citigroup an additional $20 billion in TARP funds (considered exceptional financial assistance by Treasury) 

in return for additional shares of preferred stock and warrants, a transaction that closed on 

December 31, 2008. On January 2, 2009, Treasury announced the titles of these previously disclosed 

assistance transactions: the asset pool protection was named the Asset Guarantee Program (“AGP”) and the 

additional capital assistance was named the Targeted Investment Program (“TIP”). 

Over the following year, the economy and Citigroup’s outlook improved. The financial system stabilized, 

the flow of private capital returned for many of the largest institutions, and Citigroup’s capital structure was 

significantly improved through capital exchanges that occurred on July 23, 2009, and July 30, 2009. In 

these exchanges, preferred shares, including Treasury’s initial $25 billion CPP investment, were converted 

into common stock, which was more favorable to Citigroup’s balance sheet.8

In December 2009, less than 12 months after providing the additional assistance, Federal regulators 

approved Citigroup’s exit from TIP and AGP. Among other things, Citigroup’s exit from TIP meant that it 

was no longer subject to TARP’s exceptional financial assistance requirements, which had imposed upon 

Citigroup enhanced executive compensation review and approval. However, Citigroup told SIGTARP it 

voluntarily abided by those restrictions through 2009. As of December 10, 2010, Treasury had sold all 

7.7 billion shares of common stock in Citigroup that it received as a result of the CPP exchange. As part of 

SIGTARP’s continuing oversight of TARP, and to respond to a request from then-Congressman Alan 

Grayson, SIGTARP performed a review of the U.S. Government’s decision to provide additional funding 

and asset guarantees to Citigroup. The report’s objectives are to determine: 

 the basis for the decision to provide Citigroup with additional Government assistance; 

 how the asset guarantee pool was determined; and 

 the basis for the decision to permit Citigroup to terminate its AGP agreement and repay its TIP 

capital infusion. 

For a discussion of the audit scope and methodology, and a summary of prior coverage, see Appendix A. 

For additional information and comments from responding agencies, see other appendices. 

 

7

 Treasury’s press release dated November 23, 2008, stated $306 billion; however, that number was adjusted to $301 billion when 

the final Master Agreement was signed on January 15, 2009. 8

 For more information on these exchanges, see SIGTARP’s Quarterly Report to Congress, October 21, 2009, pages 68-69. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 4

 

Background 

By the end of September 2008, financial markets as a whole had suffered a loss in investor confidence. 

During that month, a succession of major U.S. financial institutions either collapsed or approached the brink 

of failure, and for some the Government stepped in to provide Federal assistance. The critical events 

included: 

 September 7 – The Federal Housing Finance Agency (“FHFA”), which had been created two months 

earlier, placed under conservatorship two of the Government-sponsored enterprises, the Federal 

National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation 

(“Freddie Mac”). Both are key participants in the secondary mortgage market.9

 September 15 – Lehman Brothers, Inc. (“Lehman”) filed for bankruptcy. To many market 

observers, the failure of Lehman was particularly detrimental to market confidence because it 

demonstrated that the Government might not be willing to rescue large financial institutions. 

 September 15 – Bank of America announced plans to purchase Merrill Lynch – at that time the 

nation’s sixth-largest financial institution. 

 September 16 – With the approval of FRB and with the support of Treasury, Federal Reserve Bank 

of New York (“FRBNY”) provided an $85 billion credit facility to insurance conglomerate 

American International Group (“AIG”) to prevent its failure. FRBNY acquired an approximately 

80% equity interest in the company as consideration for extending the credit facility. Government 

officials believed that an AIG failure would pose considerable risk to the global financial system and 

would have significantly intensified an already severe financial crisis.10

 September 21 – The large investment banking firms Goldman Sachs Group, Inc. (“Goldman Sachs”) 

and Morgan Stanley converted to bank holding companies. The conversions allowed them greater 

access to more stable sources of funding from retail deposits and made them eligible for Government 

assistance to which they otherwise would not have been entitled. 

 September 25 – Washington Mutual, Inc. was closed by the Office of Thrift Supervision (“OTS”) 

and FDIC was named receiver in what was the largest depository institution failure in U.S. history. 

 September 29 – Citigroup issued a press release relating to its announced agreement in principle to 

acquire the banking operations of Wachovia Corporation (“Wachovia”) in an FDIC-assisted 

transaction. Four days later, on October 3, 2008, Wells Fargo & Company (“Wells Fargo”) 

announced that it would purchase Wachovia without FDIC assistance. On October 9, 2008, 

Citigroup announced that it had ended its negotiation with Wells Fargo on the Wachovia transaction. 

Former Comptroller of the Currency John Dugan told SIGTARP that he believed that the failure of 

the Citigroup-Wachovia deal contributed to negative market perceptions of Citigroup. According to 

 

9

 In the secondary mortgage market, mortgage loans and servicing rights are bought and sold between mortgage originators, 

mortgage aggregators (including the housing-related Government-sponsored enterprises), and investors. 10 For a more complete discussion of the decision to rescue AIG, see SIGTARP’s audit report on “Factors Affecting Efforts to 

Limit Payments to AIG Counterparties,” SIGTARP-10-003, November 17, 2009. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 5

 

an Office of the Comptroller of the Currency (“OCC”) examiner, it appeared to the market that 

something was structurally wrong with Citigroup and that the company was not strong enough to 

merge with Wachovia.11

 September 29 – The U.S. House of Representatives voted down H.R. 3997, the original version of 

the legislation that later created TARP and that would have authorized Treasury to assist banks by 

purchasing, managing, and selling troubled mortgage-related assets. That same day, the Dow Jones 

Industrial Average suffered its largest one-day point loss in history, dropping 777.68 points. 

These events, among others, devastated investor confidence in the nation’s financial system and set the 

stage for the ensuing TARP. In addition, in response to the continuing and growing economic crisis, the 

U.S. and other governments sought to implement even more aggressive plans to address the stresses on 

financial institutions in their countries and the turmoil in the global financial markets. The governments of 

the United Kingdom, Germany, France, Canada, Ireland, and Sweden either provided liquidity and capital 

injections to their institutions or banned short selling of stocks of several financial institutions. 

Although Congress rejected Treasury’s initial proposal to assist banks, Congress enacted EESA on 

October 3, 2008. The first wave of TARP financial assistance was announced on October 14, 2008, in the 

form of CPP investments. Treasury announced that it created CPP to provide funds to “stabilize and 

strengthen the U.S. financial system by increasing the capital base of an array of healthy, viable institutions, 

enabling them [to] lend to consumers and businesses.” Secretary Paulson stated in a press release that the 

intent of the program “is to increase confidence in our banks and increase the confidence of our banks, so 

that they will deploy, not horde [sic], their capital. And we expect them to do so, as increased confidence 

will lead to increased lending. This increased lending will benefit the U.S. economy and the American 

people.” One of the first uses of TARP funds was to pledge a total of $125 billion of capital to nine major 

financial institutions as part of CPP, which was originally approved to provide up to a total of $250 billion 

of TARP funds to institutions deemed to be “Qualifying Financial Institutions.”12

According to Treasury, the nine financial institutions identified to receive the initial $125 billion investment 

were selected for their perceived importance to the greater financial system. Citigroup received $25 billion 

in that initial capital commitment. This was loosely based on a formula, determined by Treasury, that 

institutions receive 1% to 3% of their risk-weighted assets,13 to a maximum of $25 billion. Citigroup, as of 

September 30, 2008, held almost $1.18 trillion of risk-weighted assets, and received the maximum 

investment of $25 billion in return for preferred stock. 14 Despite the initial assistance from Treasury, 

 

11 OCC requested deletion of portions of statements attributed to former Comptroller of the Currency John Dugan and an OCC 

examiner that appeared in the original version of this report. These statements concerned the market’s perception of the failure 

of the Citigroup-Wachovia deal. Based on further review, SIGTARP chose to honor this request and amended the paragraph 

accompanying this footnote accordingly. The revision did not affect the report’s findings or conclusions. 12 Qualifying Financial Institutions were private and public U.S.-controlled banks, savings associations, bank holding companies,

and certain savings and loan holding companies that were deemed “healthy and viable.” 13 Risk-weighting of assets is the classification of assets according to the risk of loss from investment in the asset. A bank’s assets 

are weighted according to credit risk, and some assets, such as debentures, are assigned a higher risk than others, such as cash 

or Government bonds. This sort of asset calculation is used by regulators to determine the capital requirements for financial 

institutions. 14 Preferred equity ownership usually pays a fixed dividend prior to distributions for common stock owners but only after 

payments due to holders of debt and depositors. It typically confers no voting rights. Preferred stock also has priority over

common stock in the distribution of assets when a bankrupt company is liquidated. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 6

 

disruptions in the financial markets and losses in the financial industry continued, and the nine institutions 

that initially received CPP funds collectively lost $40.9 billion in the fourth quarter of 2008 alone.15 ThenFRBNY President Timothy F. Geithner told SIGTARP that even though the CPP investments helped slow 

the momentum of the financial panic, there was still tremendous stress on the system. He stated, “It was 

clear in late October and early November that we would have to escalate the commitment to large 

institutions that needed additional assistance.” 

In a matter of weeks, two of the nine institutions (Citigroup and Bank of America) needed additional 

support. On November 23, 2008, the Federal Government announced that it would provide Citigroup with 

further assistance, including an asset guarantee and an additional $20 billion of TARP funds in the form of a 

preferred equity capital injection. Together with CPP, the $20 billion brought the total TARP capital that 

Treasury announced or awarded to Citigroup in little more than a month to $45 billion. Citigroup received 

the additional $20 billion on December 31, 2008.16 Two days later, on January 2, 2009, the Federal 

Government announced that the funding had been provided under the newly titled Targeted Investment 

Program (“TIP”).17

Treasury described the new investment program as intended to stabilize the financial system by making 

investments in institutions it deemed critical to the system’s functioning. The only institutions to receive 

funds under TIP were Citigroup and Bank of America. The stated goal of this program was to invest funds, 

on a case-by-case basis, “to strengthen the economy and protect American jobs, savings, and retirement 

security” where “the loss of confidence in a financial institution could result in significant market 

disruptions that threaten the financial strength of similarly situated financial institutions.”18 TIP allowed 

Treasury to make targeted investments in financial institutions beyond those under CPP if it believed a loss 

of confidence would threaten other similar institutions, the broader financial markets, or the economy as a 

whole. Treasury announced the following five determining factors for deciding whether to make future 

investments under this program: 

1. the extent to which destabilization of an institution could have threatened the viability of its creditors 

and counterparties, whether directly or indirectly; 

2. the extent to which an institution was at risk of a loss of investor confidence and the degree to which 

that stress was caused by a distressed or illiquid portfolio of assets; 

 

15 The profit or <loss> for each of the nine institutions in the fourth quarter of 2008 was: Bank of America Corporation, 

<$1,789,013,000>; The Bank of New York Mellon Corporation, $61,000,000; Citigroup, Inc., <$17,263,000,000>; Goldman 

Sachs Group, Inc., <$2,006,000,000>; JPMorgan Chase & Co., $702,000,000; Morgan Stanley, <$2,295,000,000>; State Street 

Corporation, $256,747,000; Wells Fargo & Company, <$2,734,000,000>; Merrill Lynch & Co., Inc., <$15,844,000,000>. 16 After consultation with Chairman Bernanke, Secretary Paulson signed a determination on December 30, 2008, stating that 

shares of preferred stock and warrants issued by Citigroup are financial instruments the purchase of which is necessary to 

promote financial stability, and, as such, are “troubled assets,” eligible to be purchased under TARP. The Secretary’s 

determination was transmitted to the appropriate committees of Congress that same day in accordance with Section 3(9) (B) of 

EESA. 17 A senior Treasury official told SIGTARP that Treasury could have made the $20 billion TIP investment under the existing 

Systemically Significant Failing Institution program, which had been announced in November 2008 in connection with its 

assistance of AIG, but Treasury did not do so, in part because it did not want to identify Citigroup as a “failing institution.” 18 Treasury, Guidelines for Targeted Investment Program, updated 11/20/2009, 

http://www.financialstability.gov/roadtostability/tipguidelines.html, accessed 11/3/2010. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 7

 

3. the number and size of financial institutions that were similarly situated, or that would likely have 

been affected by destabilization of the institution being considered for the program; 

4. whether the institution was sufficiently important to the nation’s financial and economic system such 

that a loss of confidence in the firm’s financial position could potentially have caused major 

disruptions to credit markets or payment and settlement systems, destabilized asset prices, 

significantly increased uncertainty, or led to similar losses of confidence or financial market stability 

that materially could have weakened overall economic performance; and 

5. the extent to which the institution had access to alternative sources of capital and liquidity, whether 

from the private sector or from other sources of Government funds. 

At the same time that Citigroup announced the additional $20 billion preferred stock investment by 

Treasury, Citigroup announced a third transaction with the Government, which, according to Citigroup 

officials, was patterned conceptually on a plan that was developed, in conjunction with regulators, when 

Citigroup agreed to purchase Wachovia’s banking operations. Treasury, FDIC, and FRBNY agreed to 

guarantee a portion of potential losses on a designated pool of Citigroup assets valued initially at 

approximately $306 billion through a program that Treasury would later name AGP.19 The asset pool was 

also referred to as a “ring-fence.” AGP provided certain loss protections “for assets held by systemically 

significant financial institutions that face a high risk of losing market confidence due in large part to a 

portfolio of distressed or illiquid assets.”20 Treasury and FDIC received $7.059 billion in preferred stock 

from Citigroup in exchange for the guarantee.21 Of this, Treasury received $4.034 billion and FDIC 

received $3.025 billion. 

Although Citigroup was the only institution to receive an asset guarantee through AGP,22 Treasury 

announced five factors it may consider, among other things, in determining whether to use the program for 

an institution. The factors for AGP were the same as those listed above for TIP. 

 

19 Pursuant to Section 102 of EESA, Treasury issued a written report to Congress on December 31, 2008, in connection with the 

insurance program (i.e., AGP) established under Section 102 (a). 20 Treasury, Section 102 Report, December 31, 2008, http://www.treas.gov/press/releases/reports/0010208%20sect%20102.pdf, 

accessed August 10, 2010. 21 Treasury also received warrants to purchase common stock from Citigroup as part of CPP, AGP, and TIP transactions. 22 While Treasury announced an AGP transaction for Bank of America, the transaction was not completed. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 8

 

Stock Price Declines and Increases in CDS Spreads Trigger a 

Potential Run 

This section presents a description of the market events that led to the decision to provide Citigroup with 

extraordinary Government assistance. 

Even after Citigroup received $25 billion in CPP funds, its stock price dropped steadily and dramatically in 

the first three weeks of November 2008, and FRBNY’s General Counsel told SIGTARP that the market still 

perceived Citigroup as an institution “less strong than others.” Robert Rubin, a former Citigroup Director 

and Senior Counsel, told SIGTARP that on the evening of November 18, 2008, he called Treasury Secretary 

Paulson to tell him short sellers were attacking the bank, and that the Securities and Exchange Commission 

(“SEC”) should reimpose the uptick rule on short selling.23 Citigroup’s share price fell from around $13.99 

at the market’s close on November 3, 2008, to $3.05 per share on November 21, 2008, before closing that 

day at $3.77. In the week leading up to the decision to extend Citigroup extraordinary assistance, 

Citigroup’s stock decreased far more than that of its peers, losing over half its value (see Figure 1 for 

Citigroup’s stock price from November 17-21, 2008). 

FIGURE 1 

CITIGROUP AND PEERS CUMULATIVE STOCK PRICE FOR THE WEEK OF NOVEMBER 17, 2008 

Note: The cumulative change is from Friday, November 14, 2008, and is based on closing prices.

Source: SIGTARP analysis of Bloomberg data. 

Referring to the drop in Citigroup’s stock price, Citigroup Vice Chairman Ned Kelly told SIGTARP “it 

wasn’t entirely clear why we had a problem. It appeared to be market psychology without any regard to 

 

23 The uptick rule was mandated by the Securities Exchange Act of 1934 as Rule 10a-1 and was implemented in 1938. The rule 

required that a short sale transaction be entered only at a price that is higher than the price of the previous trade. A short sale 

occurs when an investor enters into an agreement to sell a stock at a current price and at a later time buy that amount of stock at 

what the investor hopes will be a lower price. The uptick rule prevents short sellers from adding to the downward momentum 

when the price of an asset is already declining. The SEC revoked the uptick rule in September 2007. 

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

Cumulative % Change

17-Nov-08 18-Nov-08 19-Nov-08 20-Nov-08 21-Nov-08

Citigroup -7% -12% -33% -51% -60%

Bank of America -8% -7% -20% -31% -30%

JPMorgan 

Chase -5% -7% -17% -32% -34%
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 9

 

fundamentals.” He said he believed that Citigroup’s underlying financials had not changed. FRB Chairman 

Bernanke told SIGTARP that Citigroup’s biggest problems were credit and confidence, and an FRBNY 

official told SIGTARP that FRBNY had observed this same type of activity preceding the failure of 

Lehman. He told SIGTARP that “banking is a game of confidence...and we saw the behavior and the lack 

of confidence, ...[which] was alarming.” 

Citigroup Chief Executive Officer (“CEO”) Vikram Pandit testified before the Congressional Oversight 

Panel on March 4, 2010, that he believed Citigroup was a “healthy financial institution” both on 

October 1, 2008, and on November 21, 2008. Mr. Pandit testified that Citigroup’s problems were “not 

about the capital we had, not about the funding we had at that time, but with the stock price where it was.” 

In an interview with SIGTARP, Mr. Pandit reiterated his view that Citigroup was “financially healthy” on 

November 21, 2008, and clarified that he meant that Citigroup was comfortable with its capital, liquidity, 

reserves, and portfolio asset values. He stated that the financial health of the company was not the issue, but 

that the market had seen significant stock price declines with Lehman, Merrill Lynch, and AIG immediately 

prior to the financial distress of these companies, and now the same thing was happening at Citigroup. 

Mr. Pandit indicated that, in a market that is not completely rational, when the stock price declines to a 

certain level, the perception of the stock price can create a reality. 

During this time, market participants also began to question Citigroup’s ability to honor its commitments. A 

strong indicator that the market had lost confidence in Citigroup was that those who owned Citigroup debt 

(i.e., its bonds) were finding it increasingly expensive to hedge that debt. The price for a credit default swap 

(“CDS”), which essentially provides insurance against default, was increasing dramatically. In other words, 

the market was increasingly concerned that Citigroup would not be able to make good on its debts. 

Regulators frequently cited the 

expansion of Citigroup’s CDS 

spreads as one of the most telling 

indicators of the market’s perception 

of Citigroup during the period leading 

up to the implementation of AGP and 

TIP. 

Figure 2 illustrates that from 

November 17, 2008, through 

November 21, 2008, the company’s 

CDS spreads more than doubled. The 

CDS spreads of Bank of America and 

JPMorgan Chase, meanwhile, had 

been about half those of Citigroup 

and increased far less significantly 

during that week. 

Credit Default Swaps and CDS Spreads 

A credit default swap (“CDS”) is an insurance-like contract in 

which the seller receives a series of payments from the buyer in 

return for agreeing to make a payment to the buyer if a particular 

credit event outlined in the contract occurs – for example, if a bond 

or loan goes into default. A CDS spread is stated as a percentage 

of par value that the insurance buyer is willing to pay the insurance 

seller in exchange for the insurance for a specific period. For the 

purposes of this report, CDS spreads are stated as annualized 

quarterly payments. The higher the CDS spread, the more 

expensive it is to buy protection against default, reflecting that the 

market sees that the institution standing behind the bond is more 

likely to default on its obligations. In other words, the greater the 

spread, the less creditworthy the institution is regarded by the 

market. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 10

 

FIGURE 2 

CREDIT DEFAULT SWAP SPREADS 

Source: SIGTARP analysis of company data. 

Both the stock price and Citigroup’s credit default swap spread changed unfavorably, as depicted in 

Figure 3 below. 

A Run on Citigroup Becomes a Possibility 

Secretary Paulson, FRB, and OCC expressed concern at the time that depositors might start a run24 on 

Citigroup, and that as a result, the bank would suffer a severe liquidity crisis (not have enough cash on 

hand) and not be able to meet its obligations as they became due. On Friday, November 21, 2008, these 

concerns were substantiated by significant corporate withdrawals (i.e., a run), primarily in the U.S. and 

secondarily in Europe. An OCC official stated that OCC received indications that problems related to 

deposit outflows were also beginning to emerge for Citigroup in Asia’s Monday morning trading hours (the 

evening of Sunday, November 23, 2008, Eastern Standard Time (“EST”)) until the Government announced 

its support of Citigroup. 

Citigroup CEO Pandit acknowledged that the unfavorable stock price movements could have been a cause 

of the significant deposit outflows occurring on November 21, 2008. Over the course of just one night 

(November 20-21, 2008), Citigroup’s balance of available funds in its GTS unit shrank by $13.8 billion, 

from $288.0 billion to $274.2 billion. If Citigroup’s deposit outflows continued and Citigroup was not able 

 

24 A run occurs when large numbers of depositors suddenly demand to withdraw their deposits from a bank. This may be caused 

by a decline in depositor confidence or fear that the bank will be closed by the chartering agency. Banks keep only a small 

fraction of their deposits in cash reserves, and thus, large numbers of withdrawals in short periods of time can cause even a 

healthy bank to have a severe liquidity crisis that could cause the bank to be unable to meet its obligations and fail. 

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

17-Nov-08 18-Nov-08 19-Nov-08 20-Nov-08 21-Nov-08

Citi CDS Spread

Citigroup

Bank of America

JPMorgan Chase
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 11

 

to access additional liquidity, FRBNY and OCC officials questioned whether Citigroup could make it 

through the following week. 

FIGURE 3 

CITIGROUP CDS SPREAD VS. STOCK PRICE

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

$0

$2

$4

$6

$8

$10

$12

$14

$16

Stock Price 

Stock

CDSCDS Spreads

Source: SIGTARP analysis of company data.

Counterparties Pull Back from Citigroup 

By mid-November 2008, Citigroup had started receiving calls from investors, counterparties, fund 

managers, and other professional investors inquiring about the viability of the institution, and asking for 

more and better collateral on Citigroup debts that the investors held. The OCC Deputy Comptroller for 

Large Bank Supervision told SIGTARP that “numerous counterparties called with concerns about 

counterparty risk.” FRBNY President Geithner told SIGTARP that he observed the stock price declining 

and funding becoming shorter term and more expensive on a daily basis. 

According to an FRBNY official, by November 21, 2008, counterparties began to “pull back from 

Citigroup” because of its perceived decline in creditworthiness. This meant, as he described it, that 

Citigroup’s counterparties were increasingly unwilling to engage in financial transactions with Citigroup or 

to provide it with credit. These included federal funds25 market counterparties (other depository institutions 

that would normally extend Citigroup credit in overnight borrowing) and, even more troubling, secured 

financing26 counterparties. The FRBNY official described short-term funding through secured financing as 

a “good liquidity barometer.” Liquidity is the degree to which an asset can be easily converted to cash. 

 

25 Federal funds are unsecured loans (loans without collateral) of reserve balances at Federal Reserve Banks between depository 

institutions. The most common duration or term for a federal funds transaction is overnight, although longer-term deals are 

arranged. 26 Under a short-term secured financing arrangement, lenders receive an asset as collateral in exchange for a loan. They hold the

collateral for the period of time that the loan is outstanding (e.g., one week), and then return the collateral once the loan is 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 12

 

An FRBNY official told SIGTARP that it was “a bad sign” when lenders started to differentiate Citigroup’s 

collateral from its peers or declined short-term funding for Citigroup. Another FRBNY official stated that it 

was clear the market was singling out Citigroup, as its peers were not experiencing the same problems. 

Citigroup was also having difficulty issuing commercial paper. A former Citigroup Treasurer told 

SIGTARP that it became hard for Citigroup to finance commercial paper for any length of time beyond 

overnight but stated that it was not an important avenue of liquidity. FRBNY officials told SIGTARP that 

commercial paper purchasers such as mutual funds lost confidence in Citigroup’s ability to repay, which 

forced Citigroup to issue debt with shorter maturities. 

 

repaid. In the event the borrower defaults on the loan, the lender retains the collateral, which is typically comparable in value 

to the loan extended.
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 13

 

Citigroup Declared a ‘Systemic Risk’ 

This section describes the conclusions of the relevant Government entities that a failure of Citigroup would 

constitute a systemic risk to the national and global economy and that Citigroup therefore needed 

additional Government assistance. 

Saving Citigroup at All Costs 

An FRBNY official told SIGTARP that a consensus of Federal Government parties held that it was 

necessary to “save Citigroup at all costs” in order to stabilize the nation’s financial system. OCC,27

Treasury, FRB, and FDIC took active roles and ultimately concluded that, without additional assistance, 

Citigroup could collapse, resulting in systemic effects throughout the financial markets and the economy as 

a whole. Citigroup CEO Pandit stated he did not know what the systemic effects of a Citigroup failure 

would be, and, essentially, that no one wanted to find out. CEO Pandit told SIGTARP, “We saw what 

happened with Lehman, and we’re a lot bigger than Lehman.” 

Systemic Risk Determination Process 

By law, FDIC could not participate in the Government’s assistance package for Citigroup, which would 

constitute “open bank assistance,”28 without a waiver from the Secretary of the Treasury in the form of a 

Systemic Risk Determination.29 In order to make this determination, which includes the conclusion that 

FDIC’s normal resolution process “would have serious adverse effects on economic conditions or financial 

stability,”30 the Secretary of the Treasury must first receive recommendations from the Board of Directors of 

FDIC31 and the Board of Governors of the Federal Reserve System, and consult with the President of the 

United States. 

FRB Assesses Citigroup’s Systemic Risk 

On the morning of Thursday, November 20, 2008, Secretary Paulson and FRBNY President Geithner held a 

conference call with FRB Chairman Bernanke, FDIC Chairman Bair, and Comptroller Dugan to discuss 

Citigroup. Chairman Bernanke told SIGTARP they discussed Citigroup’s condition and the “too big to fail” 

issue. During the call, FRBNY President Geithner told the other principals, “We’ve told the world we’re 

not going to let any of our major institutions fail. We are going to have to make it really clear we’re 

standing behind Citigroup.” According to Chairman Bernanke, it was “not even a close call to assist them.”

Chairman Bernanke told SIGTARP that a Citigroup failure “would have been Lehman times two or three in 

terms of the financial sector and the economy.” “This was a view strongly held” at the time, he said. 

Citigroup was perceived as being interdependent and interconnected with a broad array of different financial 

institutions both in the U.S. and internationally, and in FRB’s view, Citigroup’s failure would have 

implications that reached beyond the bank itself, including serious adverse effects on domestic and 

 

27 OCC, as one of Citigroup’s primary regulators, played an extensive role throughout Citi Weekend in providing material data 

and analysis about Citibank to FDIC and FRB. 28 In an open bank assistance agreement, FDIC provides financial assistance to an operating insured bank or thrift determined to 

be in danger of closing. 29 12 U.S. Code, section 1823(c)(4); 12 C.F.R. 360.1. The only exception to the “least-cost resolution” requirement is when it is 

determined that a systemic risk to the financial system exists. 12 U.S. Code, section 1821(c)(4)(G). 30 12 U.S. Code, section 1823(c)(4)(G)(i)(I). 

31 The Board of Directors of the FDIC includes the FDIC Chairman, FDIC Vice Chairman, FDIC Director, Comptroller of the 

Currency, and the Director of the Office of Thrift Supervision. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 14

 

international economic conditions and financial stability. Specifically, FRB regulators believed that a 

Citigroup failure would have destabilized the global financial system by seriously impairing already 

disrupted credit markets, including short-term interbank lending, counterparty relationships in qualified 

financial contract32 markets, bank and senior subordinated debt markets, and derivatives. 

Given the significance of Citigroup’s GTS unit,33 the collapse of Citigroup would have had devastating 

effects on the broader economy. Chairman Bernanke told SIGTARP that he believed that a Citigroup 

failure had the potential to block access to ATMs and halt the issuing of paychecks by many companies and 

governments. An FDIC official separately said that adverse effects on money market liquidity could be 

expected on a global basis. 

According to FRB’s memorandum assessing the company’s systemic risk, Citigroup also was a major 

player in a wide range of derivatives markets, both as a counterparty to over-the-counter trades, and as a 

broker and clearing firm for trades on exchanges. At the end of the third quarter, the notional principal 

value of its derivatives positions was more than $35 trillion, the bulk of which was held by its Citibank, 

N.A., subsidiary. A failure of Citigroup would have left many of its derivatives counterparties scrambling 

to replace contracts that they had with Citigroup. Citigroup’s derivatives positions were fairly well 

balanced, so in more normal conditions counterparties might be able to replace Citigroup’s derivatives 

contracts relatively easily, according to the FRB memo. However, given concerns about counterparty credit 

risk and strains in some derivatives markets at the time, those contracts might have proven difficult to 

replace. 

On November 23, 2008, the Board of Governors of the Federal Reserve voted unanimously to recommend 

to the Secretary of the Treasury that a potential Citigroup failure posed a systemic risk. 

FDIC Assesses Citigroup’s Systemic Risk

On Sunday, November 23, 2008, FDIC’s Board of Directors met to consider whether or not to recommend 

that Treasury invoke the systemic risk exception and allow FDIC to participate in open bank assistance. 

During this meeting, FDIC staff recommended that the Board find that the failure of Citigroup and its 

insured affiliate banks and thrifts would have serious adverse effects on domestic and international 

economic conditions and financial stability. 

Based largely on information from Citigroup’s primary regulators, FRB and OCC, FDIC’s Board of 

Directors and FDIC staff discussed how Citigroup’s failure would seriously and negatively affect already 

disrupted credit markets, including short-term interbank lending, counterparty relationships, qualified 

financial contracts markets, and bank and senior subordinated debt markets, and would further disrupt the 

related markets in derivatives and other products. In addition, they noted in the meeting that Citigroup’s 

failure would have serious consequences for the functioning of the global payment system. Chairman Bair 

told SIGTARP, “We were told by the New York Fed that problems would occur in the global markets if Citi 

were to fail. We didn’t have our own information to verify this statement, so I didn’t want to dispute that 

with them.” During this meeting several concerns were highlighted by FDIC Board members and staff: 

 

32 A qualified financial contract is a type of financial agreement that includes, but is not limited to, securities contracts, forward 

contracts, repurchase agreements, and swap agreements. 33 The GTS unit offers integrated cash management, trade, and securities and fund services to multinational corporations, financial 

institutions, and public sector organizations spanning more than 100 countries and 65,000 clients. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 15

 

 “It’s obviously a systemic risk situation. I don’t have any question about that,” said Office of Thrift 

Supervision Director John Reich. 

 “The risk profile of Citibank34 is increasing rapidly due to the market’s lack of confidence in the 

company and the substantially weakened liquidity position. Without substantial Government 

intervention that results in a positive market perception on Monday morning, OCC and Citigroup 

project that Citibank will be unable to pay obligations or meet expected deposit outflows next 

week,” an FDIC official said. 

 “We were on the verge of having to close this institution because it can’t meet its liquidity Monday 

morning,” Chairman Bair said. “They have $500 billion in foreign deposits that nobody can 

guarantee.” 

 “The issue now is the potential for a large worldwide bank run, and that’s what has got to be brought 

under control,” one participant35 said. 

At the end of the November 23, 2008, meeting, the FDIC Board unanimously voted to recommend that 

Treasury invoke the systemic risk exception for Citigroup, thereby authorizing FDIC’s participation in open 

bank assistance to the firm in the form of a ring-fence of assets later to be titled the Asset Guarantee 

Program. While the vote was unanimous, OTS Director Reich, an FDIC Board member, expressed the 

concern that there had been “some selective creativity exercised in the determination of what is systemic 

and what’s not,” and that there “has been a high degree of pressure exerted in certain situations, and not in 

others, and I’m concerned about parity.” In terms of Citigroup, an FDIC official told SIGTARP that the 

FDIC directors and other Government entities “made a judgment call.” With both recommendations in 

hand, Secretary Paulson was then able to move forward with the process to invoke the systemic risk 

exception for Citigroup. 

Treasury Determines Citigroup Is a Systemic Risk 

On November 21, 2008, Secretary Paulson said, “If Citi isn’t systemic, I don’t know what is.” Secretary 

Paulson consulted with President Bush about making an emergency Systemic Risk Determination for five 

Citigroup subsidiary banks, which then authorized FDIC to take appropriate action under the systemic risk 

exception. 

An undated action memorandum for the Secretary discussed Treasury’s reasons for supporting the Systemic 

Risk Determination. According to the memorandum, Citigroup’s failure would threaten the viability of 

creditors and counterparties exposed to the institution, impair the liquidity of even well-capitalized 

institutions, dislocate the credit markets, and undermine business and household confidence in the broader 

economy. 

Secretary Paulson ratified the actions he took on November 23, 2008, in a written determination he executed 

on January 15, 2009.36 That determination states that FDIC and FRB both recommended that the Secretary 

 

34 Citibank, also known as Citibank, N.A., is the largest of Citigroup’s five insured entities. 35 The record of this meeting failed to identify which meeting participant made this statement. 36 Treasury submitted written notice to Congress, pursuant to Section 13(c)(4)(G) of the Federal Deposit Insurance Corporation 

Improvement Act of 1991, on December 7, 2009, stating the Systemic Risk Determination, the least-cost resolution exemption, 

and therefore the AGP, would be available to Citigroup. In the same written notice, Treasury explained its delay in notifying 

Congress: “In reviewing the Department of the Treasury's records, we have not been able to ascertain whether you received the 

formal notice of this determination as required by Section 13(c)(4)(G). As such, we are providing to you notice of the 

determination and have attached a copy of the written determination made by Secretary Paulson.” 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 16

 

make an emergency Systemic Risk Determination, states that the Secretary has consulted with the President 

about such a determination, and concludes that the Secretary has made such a determination. The 

determination also states that FDIC’s least-cost resolution requirements with respect to Citigroup would 

have had serious effects on economic conditions and financial stability, and FDIC’s taking of other action 

under the emergency systemic risk exception (i.e., AGP) would avoid or mitigate such effects. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 17

 

Citigroup’s Proposal and the Federal Regulators’ Response 

During Citi Weekend 

This section presents the discussions that led to the form of the Federal Government’s additional assistance 

to Citigroup. 

On Friday, November 21, 2008, FRBNY officials held a conference call with Citigroup officials. During 

this conversation, FRBNY officials said, it became clear that the risk profile37 of Citigroup was increasing 

rapidly, and liquidity pressures had reached crisis proportions. Based on this judgment – and its view of the 

systemic risk that Citigroup presented to the economy – FRBNY requested that Citigroup submit a proposal 

for additional Government assistance, without specifying the details of what Citigroup should include in the 

proposal. Citigroup agreed to draft a proposal. Federal officials would later label the weekend of this 

crisis – November 21-23, 2008 – as “Citi Weekend.” 

At 3:36 a.m. on Saturday, November 22, 2008, Citigroup provided FRBNY with a proposal for additional 

Government assistance.38 Citigroup CEO Pandit told SIGTARP that this proposal was based on a plan 

developed with regulators for Citigroup’s unsuccessful attempt to purchase Wachovia. Citigroup’s original 

proposal did not seek a capital injection but instead included the request that the Government guarantee 

100% of the total value of $306 billion in a pool of specified troubled assets. In exchange for this guarantee, 

Citigroup would issue the Government $20 billion in preferred stock. This stock would pay a 5% annual 

dividend and could be repaid or converted into common stock, at Citigroup’s preference, in five years. 

Citigroup CEO Pandit described the $20 billion in preferred stock as “paying for expected losses. The first 

loss would have resulted in a loss for the Government. There was an expected loss for it.” The proposal did 

not list specific assets, but listed general asset classes that Citigroup’s Chief Risk Officer for Real 

Estate/Mortgages told SIGTARP were causing investors the most concern. Included were assets such as 

residential mortgage-backed securities (“RMBS”),39 commercial mortgage-backed securities (“CMBS”),40

consumer mortgages, commercial real estate, collateralized debt obligations(“CDOs”), 41 and troubled 

corporate loans. Among the different asset classes, Citigroup included assets with “tail risk” – assets that 

had a low probability of losses, but for which any losses would be severe or complete. Citigroup selected 

these assets, which the “public most feared,” to make up the majority of its proposed asset pool.42

 

37 An FDIC official clarified that “risk profile” referred to Citigroup’s liquidity risk. In the market, the lack of confidence in 

Citigroup was stressing its liquidity ‒ there was a run on Citigroup’s foreign deposits, and counterparties had stopped providing 

the institution with wholesale funding. 38 Citigroup, in an email sent to FRBNY at 11:14 p.m. on Saturday, November 22, 2008, also requested that FRBNY double the 

financing capacities of its subsidiaries under the Commercial Paper Funding Facility (“CPFF”), a program that helped 

institutions obtain short-term financing. This request was denied. 39 An RMBS is a financial instrument backed by a pool of residential real estate mortgages. 

40 A CMBS is a financial instrument backed by a pool of commercial real estate mortgages. 41 A collateralized debt obligation is a financial instrument that entitles the purchaser to some portion of the cash flows from a 

portfolio (or group) of assets, which may include bonds, loans, mortgage-backed securities, or even other CDOs. 42 Citigroup’s proposal consisted of three pages. The first page, with the heading “Structure / Term Sheet,” is included in 

Appendix I. The second page, with the heading “Financial Impact,” described Citigroup’s assessment of the impact of its 

proposal on its capital ratio and pro forma profit-and-loss statement. The third page, with the heading “Ring-Fenced Assets and 

Expected Losses,” listed the asset class categories and detailed their dollar amounts, reserves, and expected losses. Citigroup 

objected to SIGTARP’s inclusion of the Financial Impact page and the Ring-Fenced Assets and Expected Losses page in this 

report, contending that the estimates of pro forma financial impacts, without underlying information about the relevant 

assumptions upon which they were based, could mislead readers, and that Citigroup’s method of calculating its pro forma 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 18

 

FRBNY officials forwarded Citigroup’s proposal to Federal regulators (the Board of Governors of the 

Federal Reserve System, FDIC, OCC, and Treasury) for review in advance of a meeting scheduled for the 

afternoon of Saturday, November 22, 2008. At about noon that day, Federal regulators met with Citigroup 

senior management, who described key details of Citigroup’s proposal. The terms would change 

considerably before a deal was ultimately finalized. 

On the afternoon of November 22, 2008, a series of conference calls took place among representatives of 

the Federal agencies involved in the decision regarding the manner and method of saving Citigroup. 

According to FRBNY President Geithner, “It was almost a continuous conversation with the principals on 

all sorts of ideas on how to do it. We were guided by two objectives: One, we needed a definitive strategy 

that would work, and, two, we had to do it in a way that would be most economical and fair for the U.S. 

Government and protect its interests.” In addition to Citigroup’s proposal, they discussed several other ideas 

to address the lack of market confidence in Citigroup, including: 

 Creating a conservatorship similar to those for Fannie Mae and Freddie Mac43 – This approach 

was rejected because the Government did not want the market to perceive that the Government had 

nationalized44 Citigroup, an FRB official told SIGTARP. 

 Creating a special purpose vehicle (“SPV”) to purchase troubled assets from Citigroup with 

Government funds – A special purpose vehicle is an off-balance-sheet legal entity, a corporation to 

hold transferred assets that are theoretically beyond the reach of the entities providing the assets. 

According to participants, this approach was rejected because the Government preferred a solution 

that was quick, scalable, and replicable with other institutions. Pricing the highly illiquid assets was 

very difficult and time-consuming; in fact, Treasury had announced on November 12, 2008, that it 

would not use the remaining TARP funds to make purchases of illiquid mortgage assets, in part due 

to the difficulty in solving the pricing issue. In light of this, the SPV option was rejected. 

 Creating a public-private investment fund to buy troubled or toxic assets from the bank – This 

would move the assets off the bank’s balance sheet. According to participants, this approach was 

rejected because it was very difficult to price the assets on the balance sheet of Citigroup absent a 

reliable secondary market for them. 

 Additional capital injection – This approach was described by an FRBNY official as “throwing cash 

at it.” The consensus among Government officials was that sufficient funds were not available under 

TARP at that time to fully address Citigroup’s problems, and that a lesser amount would not be 

sufficient, as evidenced by its need for assistance after the initial $25 billion CPP fund infusion. It 

was determined that some injection was necessary, and Citigroup did receive an additional $20 

billion in TARP funds. 

 

 

financials and loss projections, which might be reverse-engineered from the Financial Impact page and the Ring-Fenced Assets 

and Expected Losses page, is proprietary information. SIGTARP, without endorsing Citigroup’s claims, has decided not to 

include the Financial Impact page or the Ring-Fenced Assets and Expected Losses page of the Citigroup proposal in this report. 43 As conservator of Fannie Mae and Freddie Mac, Treasury provides support to these institutions for an indefinite period of time

while the newly created Federal Housing Finance Agency closely oversees the operations of the companies. 44 Nationalization is the act of taking private assets into public ownership by a national government or state. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 19

 

Government Response 

The Government’s representatives ultimately decided that a further cash infusion and some form of 

guarantee for a defined pool of assets would best address threats to Citigroup’s viability. An FRBNY 

official noted that Citigroup’s idea of a guarantee would keep the asset portfolio on Citigroup’s books but 

the assets would be identified and the Government would monitor them. In addition, the asset pool option 

would cost the Government far less money than purchasing the assets outright. The Government also felt 

that this approach could be replicated for other institutions that came under similar pressures. 

Over the weekend of November 22-23, 2008, representatives of the Federal agencies negotiated terms for 

Citigroup that were acceptable to all Government parties. An FRBNY official told SIGTARP that the 

Government sought to calm the global markets with decisive action before markets opened in Asia when the 

weekend was over. As the weekend drew to a close, the Government offered Citigroup a package that 

included a Government guarantee of distressed assets and additional capital assistance. 

Government Guarantee of Distressed Assets 

In response to Citigroup’s proposals, the Government ultimately agreed to guarantee possible losses to a 

ring-fence or pool of assets of roughly $300 billion – but only if Citigroup would be responsible for the first 

$37 billion of losses, which was approximately what the Government “pegged” as the expected loss for the 

ring-fence and is described below. According to OCC officials, this assistance was intended both to 

strengthen Citigroup and to help prevent a further decline in confidence in the market from spreading 

throughout the financial system and the global economy. In the action memorandum that described 

Citigroup as a systemic risk, Treasury staff noted the concern for protecting FDIC’s insurance fund: 

“Providing guarantees for the asset pool as described for these insured institutions and their holding 

company is an appropriate mitigation tool as it will facilitate lending and will help stabilize this bank 

organization and also be beneficial to the Nation’s financial stability, protect the Fund from unnecessary 

losses, and therefore be beneficial to the taxpayers.” 

Over the course of the weekend, Government officials obtained details regarding the proposed assets in the 

$306 billion pool. Citigroup had estimated that the pool had embedded credit losses45 of approximately 

$29 billion over the 10-year life of the agreement. Using financial modeling techniques and bank examiner 

estimates, on-site interagency Government staff analyzed information on the proposed asset pool and 

developed an initial regulatory estimate of embedded credit losses of $38 billion. This estimate was further 

refined, resulting in an estimated loss position in the portfolio of somewhere between $34.6 billion in a 

moderately adverse scenario and $43.9 billion in a severely adverse scenario. Based upon these two adverse 

loss projection scenarios, the Government pegged the expected loss for the ring-fence at $37 billion. 

FDIC maintained that Citigroup should take a first loss position equal to 110% of the initial regulatory 

estimate of embedded credit losses, or $42 billion, before the agency would start to cover losses. This point 

was taken into consideration as the Government parties discussed the structure and order of the Government 

loss positions. FDIC told SIGTARP that it found Citigroup’s ultimate first loss position of $37 billion 

acceptable because Treasury was willing to take a $5 billion second loss position through TARP. FDIC 

would not cover losses until 110% of the initial regulatory loss estimate, or $42 billion, was reached. 

 

45 Embedded credit loss is defined by FDIC as the total amount of future credit losses a pool of assets will incur, including losses 

covered by any associated loan loss reserves as well as losses in excess of reserves. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 20

 

By January 15, 2009, after further analysis, asset substitutions, and exclusions, Citigroup’s first loss position 

was increased to $39.5 billion. Thisloss position reflected $1.5 billion in additional reserves associated with 

the assets substituted into the pool and $1 billion as consideration for the removal of hedges from the pool. 

The Government ultimately would set Citigroup’s first loss position at $39.5 billion,46 which was more than 

the expected losses. The Government acted to further protect taxpayer interests by requiring Citigroup to 

absorb 10% of any losses in excess of $39.5 billion, with the Government assuming liability for the 

remaining 90% of any losses. The responsibility for reimbursing that 90% would be divided among 

Treasury, FDIC, and FRBNY (see Table 1). Treasury would use TARP funds to guarantee the second loss 

position by absorbing 90% of the next $5.6 billion, or $5 billion, of losses exceeding the initial 

$39.5 billion. Citigroup would absorb the remaining $0.6 billion of those losses, resulting in a maximum 

TARP payout of $5 billion. For the third loss position of $11.1 billion, FDIC would absorb 90% of losses, 

or up to $10.0 billion, with Citigroup covering the remaining $1.1 billion. 

If these losses were realized, the remaining assets in the covered pool would serve as collateral for an 

FRBNY loan to cover the additional losses and that would be issued to Citigroup at 90% of the collateral’s 

value. The FRBNY loan was non-recourse, meaning that if Citigroup’s losses were such that the remaining 

value of the asset pool became insufficient to cover the FRBNY loan, Citigroup would not have been 

obligated to repay FRBNY the full balance of the loan. Instead, FRBNY would have received ownership of 

the impaired assets. FRB Chairman Bernanke told SIGTARP that when he agreed to the transaction, he did 

not expect FRB would ever have to pay for any losses because of the structure of the first, second, and third 

loss positions. 

TABLE 1 

U.S. GOVERNMENT GUARANTEES AND LOSS PROTECTIONS TO CITIGROUP 

($ Billions) 

Loss 1 Loss 2 Loss 3 

Non-recourse 

Loan Total 

Citigroup $39.5 $0.6 $1.1 $24.5 $65.7 

Treasury (TARP) -- $5.0 -- -- $5.0 

FDIC -- -- $10.0 -- $10.0 

FRBNY -- -- -- $220.4 $220.4 

 Total $39.5 $5.6 $11.1 $244.8 $301.0 

Note: Numbers affected by rounding. According to the Federal Reserve, Citigroup’s loss position is “exclusive of reserves.” 

Sources: Citigroup Master Agreement, 1/15/2009; Federal Reserve, 1/29/2009. 

The Government’s representatives also calculated “premiums” to be paid by Citigroup to Treasury and 

FDIC for their guarantees of the asset pool. While the “expected loss” was $37 billion, there remained a 

chance that the loss would be higher and thus required the Government to make good on its guarantee. 

Using financial models and actuarial analyses, the Government determined that Citigroup should issue 

$7.059 billion in perpetual preferred shares, paying 8% annual dividends, as a premium to be divided 

 

46 Indeed, as discussed more fully below, the final agreement allowed the Government to increase this deductible amount at the 

time of finalization if expected losses on the portfolio exceeded $39.5 billion. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 21

 

between Treasury and FDIC47 for the guarantee. Based on their relative loss positions and the size of their 

guarantee, Treasury would receive $4.034 billion in shares, while FDIC would receive $3.025 billion. In 

addition, Treasury would receive warrants to purchase 66,531,728 shares of common stock at a price of 

$10.61 per share. 

Additional Capital Injection 

Having decided that an additional capital investment in Citigroup was necessary, Government 

representatives discussed the amount of capital to inject into the firm, as well as the form the capital would 

take. While the capital injection could not directly affect Citigroup’s liquidity in the short term, because the 

capital would not be transferred until December, the announcement of a planned capital injection and other 

assistance would reassure counterparties that the Government would not let Citigroup fail. With such 

assurances, Citigroup’s counterparties could be expected to relax the terms of loans to Citigroup and make 

more funds available to Citigroup in the short term. On Saturday evening, November 22, 2008, FRB 

Chairman Bernanke and Secretary Paulson discussed the merits of structuring the capital as a common or 

preferred equity investment. 

Initially, Chairman Bernanke raised the idea of a common equity investment. However, Secretary Paulson 

supported preferred equity, arguing that injecting preferred equity into Citigroup would not dilute common 

shareholder equity or carry the political implications surrounding a major Government ownership stake in 

Citigroup. A senior FRB official also believed at that time, he told SIGTARP, that nonconvertible preferred 

shares (preferred shares that could not be converted into common shares) would deter complaints of bank 

nationalization, which could have undermined confidence rather than restored it. Preferred equity, which is 

senior to common equity in the event of liquidation, also theoretically had a greater likelihood of repayment 

than common equity, thus affording the taxpayers some additional protection, and earned an obligation from 

Citigroup to make quarterly dividend payments. 

Citigroup Vice Chairman Kelly told SIGTARP that Citigroup was not involved in any discussions about the 

$20 billion of additional TARP capital to be invested by Treasury. CEO Pandit told SIGTARP that the 

capital infusion was not requested by Citigroup, but that it was suggested by “Washington” at the tail end of 

Citi Weekend. Infusing capital into Citigroup, an FRB official said, “was a clever way for the government 

parties to provide more protection and be more protected themselves.” Put another way, injecting TARP 

capital into Citigroup would provide an increased reserve cushion to allow for losses or the guaranteed 

assets to be absorbed by Citigroup, and, potentially, by TARP. Furthermore, the potential loss of an 

additional $20 billion in TARP funds was viewed as far less than the cost to the financial system of a 

Citigroup failure. 

Secretary Paulson told SIGTARP that he made the final decision as to the form and amount of the capital 

injection – $20 billion of preferred capital that required an 8% annual dividend, payable quarterly. 

Secretary Paulson stated that he did not perform any analysis specific to Citigroup in arriving at the 

$20 billion figure. Rather, he took into consideration the limited amount of TARP funds still available, as 

well as the prospect that another bank could soon need assistance. SIGTARP found no written 

 

47 FDIC’s Associate Director of the Large Institutions Group noted that if the guarantee were worth more than the compensation 

for the guarantee when FDIC first booked the transaction, then FDIC would have to make a special assessment of the industry 

to recoup the cost. FDIC wanted to avoid this action because the nation’s banks were already under severe financial stress. 

FDIC told SIGTARP that a special assessment would also be made if the ultimate cost of the guarantee exceeded the 

compensation. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 22

 

documentation of the decision-making process behind the $20 billion capital injection. FRBNY President 

Geithner also told SIGTARP he did not recall exactly how the Government arrived at the $20 billion figure, 

but it came through a mix of FRBNY and Treasury discussions. He stated “there’s no perfect science to this 

thing...You need to balance risk versus what the firm needs, but it was Treasury’s money.” As part of the 

program that would later become known as TIP, Treasury would provide $20 billion in capital to Citigroup 

on December 31, 2008, and in return receive $20 billion in preferred stock and warrants to purchase 

common stock. 

Citigroup Receives the Government’s Term Sheet 

On the afternoon of November 23, 2008, Government representatives returned a term sheet (see Appendix 

J) to Citigroup that reflected the asset guarantee and additional capital assistance described above. It 

differed substantially from the original Citigroup proposal. Citigroup executives were concerned that the 

Government’s terms were very expensive in light of the amount of assistance provided, and Vice Chairman 

Kelly noted that “many people” in Citigroup’s management recommended against accepting the proposal. 

Nevertheless, Citigroup ultimately agreed to the terms late Sunday night. According to Vice Chairman 

Kelly, Citigroup accepted the deal because it provided substantial capital relief by reducing the company’s 

total risk-weighted assets and strengthening the company’s key capital ratios. Kelly further emphasized that 

the deal would dramatically improve the market’s perception of Citigroup’s viability. 

Citigroup CEO Pandit also told SIGTARP that, in his view, the purpose of the Government assistance was 

to help restore market confidence in Citigroup. On Sunday, November 23, 2008, at 11 p.m., Treasury 

released a joint statement with the Federal Reserve and FDIC describing the package of guarantees and 

capital (see Appendix D for the complete text of the statement). See Figure 4 below for a depiction of what 

Citigroup proposed to the Government early on the morning of Saturday, November 22, 2008, compared to 

what the Government’s term sheet proposed when provided to Citigroup on Sunday, November 23, 2008. 

An FRBNY official noted that the timing for an agreement was crucial, as Citigroup had to announce that 

the Government was guaranteeing the tail risk, or unknown losses, of the assets before the markets opened 

in Asia between 7 p.m. and 8 p.m. EST. According to the official, the term sheet worked by “convincing 

the skittish market that the Federal Government was taking the risk, even though the risk really remained 

with Citigroup,” because the Citigroup loss position was greater than anticipated losses. While the parties 

failed to meet that deadline, the announcement was made within hours of the opening of the Asian markets. 

On November 24, 2008, the first trading day after the Government announcement, several market indicators 

reversed their adverse trends from the previous week. For example, Citigroup’s stock price increased from 

$3.77 to $5.95 a share, temporarily reversing the stock’s downward trend. At the same time, Citigroup’s 

credit default swap spread, or the price of insuring its debt, declined from 4.6% to 3.6%. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 23

 

Continuing Concerns About Citigroup 

Not all Government participants were convinced that the Government’s proposed plan would be sufficient. 

“I don’t think this [additional assistance] is going to fix Citi. And unless you figure out a way to stabilize 

the situation, we are going to be back in here writing more checks,” FDIC Chairman Bair noted during the 

FDIC Board systemic risk discussions about Citigroup on November 23, 2008. “We all need to be realistic 

about some of the underlying problems at this institution. It’s not just because the market is having 

problems; this institution has some problems very specific to itself...We all need to work together on how 

we need to fix that.” 

Citigroup’s problems had been well documented by its regulators prior to Citi Weekend. A Memorandum 

of Understanding (“MOU”) with Citigroup, written by FRBNY and dated May 27, 2008, required Citigroup 

to create a risk management plan. This required Citigroup to, among other things, “strengthen risk 

monitoring practices and management information systems that identify and measure on- and off-balancesheet risk exposures to ensure accurate, timely, and frequent reporting of information to the board of 

directors and senior management....” This was to include, but not be limited to, “risk exposures of the 

business lines; aggregation of risks on a consolidated basis across all business lines and activities; reports on 

deviations from established risk limits and risk management objectives; reports on new and emerging risks; 

and reports to identify adverse trends.” Also, OCC had, and continues to have, a comprehensive MOU 

(signed June 10, 2008) with Citibank including required upgrades to risk management. Even several 

months after Citi Weekend, regulators continued to express concern about Citigroup. In an email to 

Citigroup’s regulators on February 22, 2009, Chairman Bair emphasized FDIC’s view that Citigroup 

required “greater senior management bank experience” and the need for management changes “at the top of 

the house.” 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 24

 

FIGURE 4 

CITIGROUP’S PROPOSAL VS. GOVERNMENT’S TERM SHEET

Citigroup Proposal (November 22, 2008)

No

Capital

Infusion

Government Term Sheet (November 23, 2008)

• $306 Billion Asset Pool Guarantee.

• Government to accept 100% of losses on asset pool.

• Government to receive compensation for the guarantee in the 

form of $20 billion in preferred shares with a 5% dividend, 

redeemable at Citigroup’s option in five years as cash or common 

stock.

$20 Billion

Capital Infusion 

(in the form of 

preferred stock 

with an 8% 

dividend)

• $306 Billion Asset Pool Guarantee.

• Citigroup to accept the first loss position with a deductible of $29 

billion plus existing reserves, for a total of $37 billion. Losses in 

excess of Citigroup’s deductible shared by the Government (90%) 

and Citigroup (10%). Treasury to accept the second loss position 

up to $5 billion. FDIC to accept the third loss position up to $10 

billion. FRBNY to provide a non-recourse loan equal to the 90% of 

the value of the remaining assets in the pool at the Overnight 

Index Swap Rate plus 300 basis points after the first $56 billion in 

losses. 

• Government to receive a premium of $7 billion in preferred 

shares with an 8% dividend.

Cash

Non-Cash

Non-Cash

Cash

Source: Citigroup email to FRB.
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 25

 

Changes to the Guaranteed Portfolio and Conversion of the 

Government’s Preferred Stock

This section discusses how the Government’s asset criteria affected the composition of Citigroup’s asset 

pool. The timeframe for finalizing the asset pool was governed by the Asset Guarantee Program’s Master 

Agreement, which was signed on January 15, 2009. This section also discusses Treasury’s decision to 

modify its original agreement and allow Citigroup to convert the preferred stock Treasury received from 

Citigroup into a combination of common stock and trust preferred securities. 

After the Government and Citigroup announced their preliminary agreement on the framework of the 

$306 billion asset pool guarantee on November 23, 2008, the parties still needed to negotiate and sign a 

Master Agreement and agree upon the assets covered by the guarantee. Citigroup analyzed the asset pool 

that it had proposed over Citi Weekend and set its value at $307.2 billion. In subsequent discussions, the 

Government defined a set of criteria, which it called “filters,” that qualified individual assets for the 

guaranteed portfolio. Application of these criteria, along with accounting adjustments, led to approximately 

$100 billion in changes from the originally proposed asset portfolio. 

From November 24, 2008, through December 6, 2008, the Government agencies discussed with each other 

the unique concerns that they had, including the intent, previously discussed with Citigroup, to exclude 

foreign assets from the pool, and determined a collective strategy for concluding a Master Agreement with 

Citigroup. An FRBNY official noted that during the initial meeting in person with Citigroup officials on 

December 6, 2008, the Government instructed Citigroup to await documentation of the specific terms of the 

agreement, and noted that the Government would allow little if any negotiation of the terms. 

On December 23, 2008, the Government’s representatives provided Citigroup with a draft of the asset pool 

agreement. According to Citigroup, although it had already started discussing asset criteria with the 

Government, this was the first time Citigroup received any written guidance on the types of assets eligible 

for the guaranteed pool. The asset criteria in the draft agreement specified that: 

1. each asset be owned by a Citigroup affiliate and have been included on its balance sheet as of the 

beginning of Citi Weekend (November 21, 2008); 

2. no foreign assets could be included; 

3. no equity securities (such as shares of stock in other entities) or derivatives of such equity securities 

could be included; 

4. all assets in the pool were to have been issued or originated before March 14, 2008; and 

5. Citigroup and its affiliates could not be the obligor48 of any assets. 

Later, a sixth criterion was added: “The assets were not to be guaranteed by any Governmental authority 

pursuant to another agreement.” Based on these criteria, Citigroup performed an iterative asset-swapping 

 

48 An obligor is the person or entity who owes an obligation to another, as one who must pay a promissory note. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 26

 

process that occurred mostly before the execution of the definitive agreement on January 15, 2009.49 

During this process, with the review and approval of the Government, Citigroup removed assets that had 

originally been designated for the pool and replaced them with other assets. Driven by the criteria (as well 

as by what Citigroup excluded for other reasons50 and accounting adjustments), these substantial changes to 

the composition of the pool reduced the value of the pool from $307.2 billion51 to $300.79 billion (see Table 

2 below). The majority of the approximately $102.16 billion of asset reductions from the original 

Citigroup-proposed asset pool were assets considered ineligible per the Government’s criteria. These assets 

were replaced with $95.75 billion of new assets. During this screening and replacement, the Government 

initiated a due diligence review52 to gain comfort with Citigroup’s processes and hired 

PricewaterhouseCoopers LLP (“PwC”) and BlackRock for that purpose. 

TABLE 2

After January 15, 2009, according to data provided by Citigroup officials, accounting adjustments of 

replacement asset balances further reduced the pool balance by a net $1.2 billion, and confirmation process 

adjustments increased the pool balance by a net $1.35 billion. FRBNY also stated that the Government 

objected to, and Citigroup removed, $2.26 billion of assets that failed the Government’s asset criteria. 

Citigroup replaced these with $2.26 billion of new assets. In addition, FRBNY told SIGTARP that 

Citigroup was permitted to remove an additional net $200 million of assets from the pool because their 

inclusion would have been overly burdensome from an operational perspective. While the Government 

permitted these removals, it considered them to be voluntary (i.e., excluded for reasons other than failing the 

eligible asset criteria) and, therefore, ineligible for replacement. On November 17, 2009, almost one year 

after Citi Weekend, and just 36 days before AGP was terminated, the asset pool was finalized at 

$300.75 billion.53

 

49 On January 15, 2009, after consulting with Chairman Bernanke, Secretary Paulson signed a determination, in connection with 

Section 3(9)(B) of EESA, which allowed non-mortgage-related Citigroup assets to be eligible for inclusion into the AGP. 50 FRBNY explained to SIGTARP that an overwhelming majority of the excluded assets were excluded because they did not meet 

one of the asset criteria (e.g., the date criterion). A small group of CDOs was excluded because Citigroup viewed them as 

problematic and believed it did not make business sense to include them because they had been marked down already. The 

Government did not allow Citigroup to replace that group of excluded CDOs with other assets. 51 According to the terms of the January 15, 2009, Master Agreement, the size of the asset pool was limited to $301 billion. 52 FRBNY signed contracts with the accounting firm PricewaterhouseCoopers (“PwC”), effective December 1, 2008, and the 

asset management firm BlackRock, effective December 14, 2008, to perform due diligence procedures on the assets comprising 

the asset pool in accordance with the terms of the Master Agreement. PwC was primarily responsible for examining 

Citigroup’s valuation processes and testing assets in the ring-fence for compliance with the Government’s asset criteria. 

BlackRock performed loss projections on assets in the pool under a variety of different economic scenarios to determine 

whether Citigroup’s $39.5 billion deductible (i.e., first loss position) was adequate. The size of the asset pool and time 

constraints required extending the review process beyond the date on which the Master Agreement was executed. 53 When SIGTARP proposed to publish the final, asset-level, list of assets in the pool, Citigroup objected on the ground that doing 

so would negatively affect its ability to sell those assets. Without conceding that Citigroup’s concerns are well-founded, 

SIGTARP, in an abundance of caution, has decided to honor Citigroup’s request. 

CHANGES TO ASSET POOL BETWEEN 11/21/2008 AND 1/15/2009 

($ BILLIONS) 

Citigroup Initial 

Proposal 

Asset Pool 

Reductions

Assets Added to

Pool

1/15/2009 Pool

$307.20 $(102.16) $95.75 $300.79

Source: Citigroup. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 27

 

Two criteria were responsible for the majority of asset removals: 

 Foreign asset criterion – A Federal Reserve official noted that the Government’s representatives 

worried about the prospect of political fallout from using public funds to support foreign obligors.54 

Furthermore, the Federal Reserve expressed concern about the possible difficulties it could face as a 

creditor in perfecting55 its interests in foreign collateral.56

 Origination date criterion – The Government excluded all assets originated after March 14, 2008, 

as required by Section 102 of EESA.

One OCC examiner told SIGTARP that Citigroup did not have sufficient information from its computer 

systems about all the assets, and did not have the capacity to readily aggregate global data. As a result, 

Citigroup was not able to provide regulators with effective information about all of the assets during the 

initial review over Citi Weekend. Nor was it subsequently able to determine whether some of the originally 

proposed assets met the asset criteria. Similarly, PwC told SIGTARP it faced problems testing the asset 

pool, particularly in extracting data from Citigroup’s many different computer systems across several 

different entities. However, almost one year after Citi Weekend, on November 17, 2009, the Government 

was finally confident that the assets that did not meet its criteria had been excluded from the pool.

Citigroup’s Rationale for Including Specific Assets 

According to Citigroup officials, Citigroup’s originally proposed asset guarantee pool mainly included 

categories of assets that had been the center of negative public and media attention. Generally, the market 

was concerned about CDOs, consumer mortgages, commercial real estate, and auto loans. Large portfolios 

of loans and securities in these categories therefore made up the majority of the asset pool that Citigroup 

originally submitted over Citi Weekend. Within the originally submitted ring-fence pool, Citigroup 

generally included entire portfolios of loans and securities, seeking to avoid the perception that Citigroup 

was selecting individual bad loans and securities for the pool.57 Table 3 below details the asset class 

composition of the originally proposed portfolio and how it had changed by the time the portfolio was 

finalized. 

In response to the Government-imposed asset criteria and other accounting adjustments, by the time the 

asset pool was finalized, Citigroup had removed from the asset pool proposed over Citi Weekend all 

$12.17 billion of the proposed CDOs. Citigroup also reduced proposed commercial real estate by 

$17.44 billion,58 and reduced proposed loans to auto companies by $24.28 billion.59 Citigroup also removed 

$17.09 billion of originally submitted consumer mortgages and replaced them with an additional 

$39.21 billion in other consumer mortgages. Ultimately, when the asset pool was finalized at 

$300.75 billion in November 2009, approximately $100 billion in changes from the initially proposed assets 

had been made. In response to the asset exclusions, Citigroup substituted $98 billion of assets into the pool, 

 

54 EESA did not prohibit purchasing or protecting foreign assets. 

55 Security interest in an asset (mortgaged as collateral) protected from claims by other parties. 56 Exceptions were listed in the Master Agreement’s definition of “Foreign Assets.” 57 One FRBNY official told SIGTARP the Government did not require that Citigroup submit entire portfolios of loans and 

securities for the asset pool. 58 The Government criteria and accounting adjustments removed $18.14 billion of the originally submitted commercial real estate, 

which Citigroup replaced with an additional $0.70 billion in other commercial real estate, for a net decrease of $17.44 billion. 59 The Government criteria and accounting adjustments removed $24.38 billion of the originally submitted loans to auto 

companies, which Citigroup replaced with an additional $0.10 billion in other loans to auto companies, for a net decrease of 

$24.28 billion. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 28

 

drawing the substitutions largely from asset classes perceived to be less risky. For example, Citigroup’s 

replacement assets included $39.21 billion of generally higher quality prime-consumer mortgages and 

$20.69 billion of commercial loans, an asset class that had not been initially proposed. 

TABLE 3 

According to a Citigroup official, substituting higher-quality assets for some of the lower-quality assets in 

the pool reduced the expected loss of the guaranteed asset pool, by its internal calculations, using 

November 2008 assumptions, from approximately $29 billion to $19.6 billion. Although the premium that 

Citigroup was paying for the guarantee did not change, from Citigroup’s perspective, the probability that 

losses from the pool would exceed Citigroup’s $39.5 billion deductible was substantially reduced, as was 

the probability that the Government would pay Citigroup for its losses. One Citigroup official elaborated: 

“We were getting less from the Government for the same pay.” However, “we proceeded because we were 

stuck with the deal.” 

RING-FENCE PORTFOLIO ASSET EXCLUSIONS AND SUBSTITUTIONS ($ BILLIONS) 

Pool Category 

Original November

2008 Pool

January 15, 2009 

Pool 

Final November 2009 

Pool

Net Changes and 

Adjustments

Consumer Loans and Lending Commitments

Consumer Home Mortgage 

Loans $153.00 $176.49 $175.12 $22.12

Retail Auto Loans $19.70 $16.15 $14.98 $(4.72)

Commercial Lendinga

$0 $23.08 $20.69 $20.69

Consumer Lending $0 $3.35 $2.75 $2.75

 Total Consumer $172.70 $219.07 $213.53 $40.83

Corporate Securities, Loans, and Lending Commitments

Alt-A RMBS and Loans for 

Securitizationb $14.33 $11.69 $11.66 $(2.67)

CDOs $12.17 $0 $0 $(12.17)

Commercial Real Estate $36.95 $19.91 $19.51 $(17.44)

Financing to Auto Companies $29.08 $5.73 $4.80 $(24.28)

Private Equity $0.49 $0 $0 $(0.49)

Monoline Insurance Company 

Derivativesc $4.45 $0 $0 $(4.45)

Structured Investment Vehiclesd

$8.58 $6.35 $6.08 $(2.50)

Prime and Subprime RMBS, 

Highly Leveraged Finance, and 

Other $28.45 $38.04 $45.16 $16.71

 Total Corporate $134.50 $81.72 $87.22 $(47.28)

Total Ring-Fencee

$307.20 $300.79 $300.75 $(6.45)

Note: Totals may not agree due to rounding. 

a Within Citigroup’s consumer banking category are loans to small and midsize companies. 

b

 Loans underlying Alt-A mortgage-backed securities typically are made to borrowers with less than full documentation, lower credit scores or 

higher loan-to-values or borrowers that fail to meet lenders’ other underwriting criteria. 

c

 Derivatives receivables from monoline insurance companies hedging Citigroup’s exposure to CDOs. Consistent with the no equities or 

derivatives criterion, the final ring-fence did not include monolines. 

d

 A Structured Investment Vehicle (“SIV”) is a finance company that attempts to profit from credit spreads between long-term assets, such as 

asset-backed securities, and short-term liabilities, such as commercial paper. 

e

 The ring-fence contained $16.4 billion of RMBS in the originally proposed pool and contained $20.6 billion in the final pool. 

Source: SIGTARP analysis of data provided by Citigroup in November 2009. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 29

 

Confirmation Process Finalizes the Asset Pool 

FRBNY told SIGTARP that while there was no statutory or regulatory deadline for completing the Master 

Agreement, Citigroup wanted to complete it before its earnings were released in January 2009. A Master 

Agreement was signed on January 15, 2009, but according to FRBNY it was not feasible to finalize the 

assets in the pool and complete a thorough due diligence review of the assets by then. The Federal agencies 

involved expressed concerns over whether they could set the loss positions and pricing appropriately, or 

execute final documentation without a conclusive listing of assets in the guaranteed portfolio. 

In response to these concerns, the Master Agreement was structured in a way that did not specify the precise 

value or composition of the guaranteed asset pool. Rather, it set a post-signing process for negotiating and 

finalizing those details, called the confirmation process. More than 10 months passed between the signing 

of the Master Agreement on January 15, 2009, and finalization of the asset pool on November 17, 2009. 

The Master Agreement governed the confirmation process, and according to its terms, the composition of 

the asset pool was subject to final confirmation by the Government. The Master Agreement included the 

following terms as to timing: 

 After signing the Master Agreement on January 15, 2009, Citigroup had until April 15, 2009, to 

provide an asset list to the Government agencies for approval. 

 The Government had 120 days, from April 15, 2009, until August 13, 2009, to complete its review 

of the asset pool. 

 From that point, Citigroup had 30 days, until September 12, 2009, to review the assets that the 

Government objected to and notify the Government of any disagreements. Citigroup and the 

Government had another 30 days, until October 12, 2009, to discuss and resolve the disagreed upon 

assets. 

 Citigroup had another 30 days to add assets to the guaranteed asset pool to offset asset decreases 

from Government objections or an aggregate change in the asset pool’s value. 

The parties met all but the final deadline: 

 On April 15, 2009, Citigroup delivered a list of $300.95 billion in assets. 

 On August 13, 2009, the Government provided Citigroup with a listing of roughly $2 billion of 

assets that it said did not meet the asset criteria. 

 On October 9, 2009, Citigroup delivered a final listing of assets to the Government. 

 On November 17, 2009, the Government finalized the composition of the guaranteed portfolio. 

According to Government officials, the Master Agreement provided 10 months for the asset confirmation 

process because considerable time was required to verify individual assets’ terms on the almost $301 billion 

ring-fence asset pool, compare them against the specified asset criteria, and perform the necessary due 

diligence. 

FRBNY contracted with PwC and BlackRock to perform asset eligibility testing and valuation procedures 

on the asset pool. PwC was responsible for testing the assets in the ring-fence for compliance with the 

Government’s asset criteria, and BlackRock performed loss projections on assets in the ring-fence under a 

variety of different economic scenarios to determine whether Citigroup’s $39.5 billion deductible (i.e., first 

loss position) was adequate. PwC and BlackRock performed most of this due diligence during the 

confirmation process between December 2008 and April 2009. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 30

 

PwC’s first objective was to understand the asset valuation control environment at Citigroup. PwC officials 

stated that they tested whether “the assets existed, jibed with records, and reported losses accurately,” and 

that PwC ultimately determined that Citigroup’s valuation process was reasonable. The second objective of 

PwC’s engagement examined the governance practices Citigroup was to employ with the guaranteed assets. 

Governance, PwC officials told SIGTARP, meant the “policies, procedures, and people” that controlled the 

assets in the ring-fence, as well as various monthly and quarterly reporting requirements. PwC’s third 

objective was to test the majority of proposed assets against eligibility criteria (e.g., foreign asset exclusions 

and origination date requirements). This testing took place between January 16, 2009, and April 15, 2009, 

after the vast majority of asset substitutions had occurred. PwC reported that during this stage of the review, 

it did not encounter any material instances where Citigroup’s assets conflicted with the asset criteria.60

FRBNY engaged BlackRock to project the possible losses for the finalized asset pool, estimating both the 

expected losses (called the base scenario) and a more severe loss level that was less likely to occur (called 

the stress scenario). An FRBNY official told SIGTARP that the first loss projection agreement with 

BlackRock covered all work through the finalization of the asset pool on November 17, 2009. An 

amendment to the first agreement was subsequently negotiated in order to cover ongoing loss projections, 

made on a quarterly basis, after the finalization of the asset pool.61

On March 5, 2009, BlackRock reported loss projections of $32.7 billion under a base scenario and 

$50.8 billion under a stress scenario based on the asset pool delivered as of January 15, 2009.62 An FRBNY 

official told SIGTARP that FRBNY felt comfortable with Citigroup’s $39.5 billion deductible based on 

these projected losses, which suggested that even under a stress scenario, while Treasury and FDIC would 

be exposed to losses, FRBNY would not. After this report, BlackRock continued to work on loss 

projections for the final asset pool. The FRBNY official stated that if the Government saw that “things had 

changed,” based on BlackRock’s final pool loss projections, the Master Agreement allowed the Government 

one immediate opportunity to either increase Citigroup’s deductible to more than $39.5 billion, change the 

assets in the pool to get a pool with loss projections that support a $39.5 billion deductible, or increase the 

compensation Treasury and FDIC received in exchange for their loss positions. According to the official, 

the asset guarantee was terminated before BlackRock completed its loss projection on the finalized asset 

pool, and FRBNY informed BlackRock to discontinue its loss projection process on December 14, 2009, 

and formally terminated its contract on December 23, 2009. 

Citigroup and Treasury Agree to Exchange Preferred Securities for Common and Trust 

Preferred Securities 

Even after the Government invested an additional $20 billion of preferred equity on December 31, 2008, 

under what became known as TIP, Citigroup’s stock price continued to decline (see Figure 5), and fell 

below a dollar per share in March 2009. According to OCC examiners, the market viewed the $45 billion of 

TARP preferred equity as the equivalent of debt and wanted Citigroup to be infused with common equity. 

 

60 Treasury also performed some independent verification on the final asset pool separate from PwC. Treasury’s additional 

review compared the changes from the April 15, 2009, ring-fence asset pool listing to the final asset pool listing, and 

substantiated the information received from PwC. 61 The quarterly loss projection engagement was rendered moot when the Citigroup portfolio guarantee agreement was terminated 

December 23, 2009. 62 During Citi Weekend, on-site interagency staff estimated embedded credit losses of the asset pool to be $38 billion. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 31

 

FIGURE 5 

CITIGROUP STOCK PRICE (OCTOBER 31, 2008 – JUNE 30, 2009) 

Note: Citigroup’s stock price bottomed out on March 5, 2009, at $0.97 per share. 

Source: SIGTARP analysis of Citigroup data. 

Citigroup and Treasury each announced on February 27, 2009, that to bolster Citigroup’s Tangible Common 

Equity (“TCE”)63 without additional monetary assistance, Treasury had agreed to exchange up to $25 billion 

of preferred stock obtained under CPP for common stock at $3.25 per share. 

The agreement was entered into on June 9, 2009, and the exchange took place on July 23, 2009, and July 30, 

2009, with Treasury receiving $25 billion of Citigroup common stock equivalent. This common stock 

equivalent converted to 7,692,307,692 shares of common stock. After the exchange was completed, 

Treasury was the largest single shareholder of Citigroup, holding approximately 33.6% of Citigroup 

common stock. A more detailed description of the decision-making process that led to the conversion of the 

preferred shares of stock that Treasury received through CPP to common equity will be included in 

SIGTARP’s upcoming audit on the CPP exit process. 

In addition to the exchange of $25 billion of its preferred shares obtained under CPP, on July 30, 2009, 

Treasury also exchanged its preferred stock investment in Citigroup acquired under TIP and AGP for new 

trust preferred securities,64 which strengthened some of Citigroup’s key capital ratios. According to 

Treasury, the new securities had “greater structural seniority” than the existing preferred stock; for example, 

they had a more senior claim in bankruptcy and Treasury would continue to collect its dividend. They paid 

an annual coupon rate of 8% and were scheduled to mature in 2039. 

 

 

63 TCE, as defined by Citigroup, represents common equity minus goodwill and intangible assets, other than Mortgage Servicing 

Rights, net of related deferred taxes. Other companies may calculate TCE differently. 64 A trust preferred security is a security that has both equity and debt characteristics, created by establishing a trust and issuing 

debt to it. 

$0

$2

$4

$6

$8

$10

$12

$14

$16

Citigroup Share Price

February 27, 2009: Citigroup

announced its agreement with

Treasury to convert $25 billion of

preferred stock, obtained

through CPP, to common stock.
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 32

 

After the exchanges, Treasury’s holdings of Citigroup securities consisted of the following: 

 Capital Purchase Program Investment: The preferred shares worth $25 billion (25,000 preferred 

shares at $1 million per share) obtained through CPP were converted into $25 billion in Citigroup 

common shares (approximately 7.7 billion common shares at $3.25 per share); Treasury also still 

held the original warrants it had received under CPP to purchase 210,084,034 common shares at a 

strike price of $17.85 per share. 

 Targeted Investment Program: The Citigroup preferred shares worth $20 billion obtained through 

TIP were converted into $20 billion of Citigroup trust preferred securities; Treasury also still held 

the original warrants it had received under TIP to purchase 188,501,414 common shares at a strike 

price of $10.61 per share. 

 Asset Guarantee Program Investment: The Citigroup preferred shares worth $4.03 billion 

obtained through AGP were converted into trust preferred securities; Treasury also still held the 

original warrant it had received under AGP to purchase 66,531,728 common shares at a strike price 

of $10.61 per share.65

 

 

65 FDIC’s $3.025 billion in preferred shares were similarly converted to trust preferred securities. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 33

 

Citigroup’s Request to Leave TIP and AGP 

This section presents the events between September 11, 2009, and December 31, 2009, and the basis for the 

Government’s decision to allow Citigroup to repay TIP and terminate AGP. 

The conditions of Citigroup’s TIP repayment were governed, in part, by the American Recovery and 

Reinvestment Act of 2009, which provides that once an institution notified Treasury that it wanted to repay 

its TARP investment, Treasury had to permit repayment, after consulting the appropriate federal banking 

agency. According to Treasury guidance, financial institutions seeking to repay TARP are subject to the 

existing supervisory procedures for approving redemption requests for capital instruments. When assessing 

a redemption request, bank regulators consider the institution’s soundness, capital adequacy, and ability to 

lend. Regulators also confirm that the institution has a comprehensive internal capital assessment process. 

Only after regulators are convinced that a TARP recipient is ready to redeem outstanding preferred stock 

will they permit a bank to do so. 

FRBNY is the supervisor of Citigroup and had the responsibility to review Citigroup’s repayment proposal, 

while FRB had final approval authority. The primary method that FRBNY ultimately used to determine 

Citigroup’s condition was a stress test akin to one performed in the Supervisory Capital Assessment 

Program (“SCAP”) in March 2009 and April 2009 (see box). FRB also obtained recommendations from 

other regulatory agencies, such as FDIC and OCC, on whether to approve or reject Citigroup’s request to 

redeem its Treasury capital. On September 11, 2009, Citigroup CEO Pandit met with FRBNY President 

William Dudley and other officials to discuss 

repayment of the TIP investment. The purpose of the 

meeting was for Citigroup to present its financial 

condition, including the results of an internal 

Citigroup stress test. While Citigroup’s presentation 

offered material information about its financial 

condition, FRB concluded that the information was 

not of sufficient depth to determine whether or not 

Citigroup was in a condition to repay TIP and 

terminate AGP. Following this meeting – and largely 

because of it – FRB took steps to perform a second 

stress test, carried out largely by FRBNY, with the 

intent of completing it by late November 2009 in time 

for Citigroup to be able to execute in mid-December 

the capital raise that would be needed to repay the TIP 

investment and terminate AGP. 

Following Citigroup’s September 11 meeting, FRB 

told Citigroup to wait until the agency had issued 

additional guidance to all bank holding companies, 

including Citigroup, which had participated in the 

original SCAP stress tests and were still in the TARP 

program. On October 20, 2009, and October 23, 

2009, Secretary Geithner met with FRB Chairman 

Bernanke, FDIC Chairman Bair, OCC Comptroller 

Supervisory Capital Assessment Program 

In early 2009, Treasury and the Federal Reserve 

announced that the Government would test the 

economic health of Citigroup and 18 other bank 

holding companies to judge whether they had 

enough capital to withstand losses while 

continuing lending, even in a worsening 

economy. SCAP “stress tests” used two 

macroeconomic scenarios: one in which the 

crisis continued as most economists were 

projecting at that time, and one in which the 

crisis worsened beyond most projections. 

According to FRBNY officials, AGP guarantees 

had little effect on how Citigroup fared in the 

tests. The tests estimated that under the more 

adverse scenario, Citigroup would require an 

additional $5.5 billion in common equity. 

Citigroup ultimately met the $5.5 billion 

additional capital condition in a pre-existing 

capital exchange program, which was executed 

in July 2009. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 34

 

Dugan, FRBNY President Dudley, and other representatives of the federal financial regulatory agencies and 

discussed guidance on the terms of repayment for the SCAP institutions remaining in TARP, as well as the 

financial conditions of those institutions. 

On November 3, 2009, FRB issued additional guidance66 that detailed the steps a recipient had to take to 

repay its TARP assistance. The guidance included maintaining sufficient capital levels after repaying 

Treasury and demonstrating the ability to access long‐term debt markets without the use of FDIC’s 

Temporary Liquidity Guarantee Program (“TLGP”).67 The guidance also stipulated that recipients could 

expedite their repayments by agreeing to raise at least $1 of new common equity for every $2 of Treasury 

capital redeemed. On November 5, 2009, an FRBNY official met with Citigroup CEO Pandit and 

Citigroup’s Chief Financial Officer. During this meeting, the FRBNY official informed Citigroup 

management that Citigroup would have to repay its TIP capital with a larger proportion of newly raised 

common equity than other SCAP bank holding companies. 

On November 9, 2009, FRBNY and others from the Federal Reserve System began performing a repayment 

stress test on Citigroup to determine the strength of its financial condition. FRB would ultimately use the 

results of this stress test to decide whether to accept or reject the proposals later made by Citigroup to exit 

TIP and AGP. The repayment stress test used the format and process of the original SCAP stress test, but 

several data inputs were updated. For example, the original SCAP stress test used Citigroup financial data 

as of December 31, 2008, while the repayment stress test used financial data as of September 30, 2009. The 

worst-case unemployment rate used in the stress test was increased from 10.4% to 11.1% to reflect an 

increase in the actual unemployment rate from 8.9% in April 2009 to 10% in November 2009. While actual 

housing prices had risen during that period, the worst-case forecast for housing prices in the repayment 

stress test was maintained at the same level used in the SCAP stress test. 

Factors Leading to Citigroup’s Proposal for TARP Redemption 

Several motivations have been suggested for Citigroup’s decision to repay its TIP funds when it did. Some 

of these factors, such as restrictions on executive compensation, had been present since the inception of TIP. 

An FDIC official told SIGTARP that FDIC believed that executive compensation restrictions were one 

reason why Citigroup wanted to exit TIP. If Citigroup repaid the $20 billion TIP injection, Citigroup would 

no longer be under the restrictions on its executive compensation for companies under “exceptional 

 

66 In a draft of this report, SIGTARP included as appendices copies of Citigroup’s final proposal to FRB, FRB’s response to 

Citigroup repayment proposal, and the additional guidance issued to SCAP participants on November 23, 2009, on exiting 

TARP. In commenting on that draft, the FRB strenuously objected to our inclusion of these documents as violative of the bank 

supervision privilege and stated that including them, among other things, would create a “loss of trust” in FRB by supervised 

entities. While SIGTARP respectfully disagrees with FRB’s prediction of harm and believes that exclusion of the documents 

unnecessarily inhibits transparency, in deference to FRB, SIGTARP has removed these documents from the report. 67 The Temporary Liquidity Guarantee Program (“TLGP”) was established in October 2008 to address “disruptions in the credit 

market, particularly the interbank lending market, which reduced banks’ liquidity and impaired their ability to lend. The goal of 

the TLGP is to decrease the cost of bank funding so that bank lending to consumers and businesses will normalize.” The 

program does not rely on the taxpayer or the deposit insurance fund, but is entirely funded by industry fees. Participating 

institutions may issue debt under TLGP’s Debt Guarantee Program, which provided an FDIC guarantee of newly issued senior 

unsecured debt of participating insured depository institutions and other eligible entities. New guarantees were issued until 

October 31, 2009, with the debt being guaranteed until “the earliest of the opt-out date, the maturity of the debt, the mandatory 

conversion date for mandatory convertible debt, or December 31, 2012.” 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 35

 

assistance,” including restrictions set by the Special Master for TARP Executive Compensation.68 An OCC 

official said that Citigroup’s risk of losing key employees to other banks because of the restrictions was 

“very real.” 

Citigroup management also cited executive compensation as a motivating factor. CEO Pandit told 

SIGTARP that “keeping the team together...was a big deal for management.” He also told SIGTARP that 

some employees in the top tiers of the firm left Citigroup and he acknowledged that executive compensation 

restrictions might have been a contributing factor. Citigroup Vice Chairman Kelly told SIGTARP that 

executive compensation was a barrier to hiring and retaining qualified managers and well-known traders “in 

a narrow sense.” But he also told SIGTARP that improving lower-level employee morale was another 

motivation to pay back TIP and terminate AGP. The assistance had led Citigroup employees to ask what 

participation in TARP meant for the company’s survival, Kelly said. 

A new motivating force arose when Citigroup’s peers remaining in TARP began the process of exiting the 

program. On Wednesday, December 2, 2009, Bank of America announced that it would redeem its TARP 

capital ($25 billion in CPP and $20 billion in TIP) that same month. According to FDIC officials, Bank of 

America’s action was the catalyst for Citigroup to submit its own formal redemption proposal to FRBNY. 

OCC officials told SIGTARP that Citigroup’s pressure to repay was “originating unquestionably from the 

marketplace” and from Bank of America’s plan to repay its TARP funds. OCC noted that if Citigroup did 

not repay its TIP funds soon after Bank of America successfully repaid its TARP funds, then Citigroup 

might have suffered from the perception that it was a weaker institution. 

Citigroup Vice Chairman Kelly told SIGTARP that Citigroup would have had a “huge competitive 

disadvantage” as the “only remaining large commercial bank” that had not repaid TARP. CEO Pandit told 

SIGTARP that “having $45 billion from the government had no positive impact on Citigroup’s image,” and 

“repaying the $20 billion, getting out of the guarantee, and Special Master, signaled that this bank has a very 

strong future.” 

Stress Test Results and Resulting Repayment Proposal 

On Thursday, December 3, 2009, just one day after Bank of America announced it would redeem its TARP 

capital, FRBNY officials presented the results of the recently completed repayment stress test at Citigroup’s 

executive offices to Citigroup’s Chief Risk Officer and Chief Financial Officer. Citigroup was then able to 

take into account the results of the stress test when planning its proposal to exit TIP and AGP. According to 

documents obtained by SIGTARP from FRBNY, the stress test required Citigroup to maintain a Tier 1 

Capital ratio of 6.0% and a Tier 1 Common ratio of 4.0% in a forecasted adverse environment. If the stress 

test indicated Citigroup could not maintain these ratios, then an additional capital buffer would be needed. 

According to FRB, Citigroup would maintain a Tier 1 Capital ratio of 6.6% and a Tier 1 Common ratio of 

4.6% if the following occurred: 

 Citigroup raised $21.4 billion through the issuance of common stock; 

 All $20 billion TIP trust preferred securities were repaid; and 

 The ring-fence agreement was canceled. 

 

68 Under the Interim Final Rule on TARP Standards for Compensation and Corporate Governance, Treasury created a new Office 

of the Special Master for TARP Executive Compensation (“Special Master”), responsible for the review and analysis of 

executive compensation at TARP recipient companies. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 36

 

According to FRBNY, a dialogue between FRBNY and Citigroup occurred following the December 3, 

2009, meeting. The two parties discussed the amount of common equity that Citigroup would be able to 

raise in the market environment at that time. On December 9, 2009, an FRBNY official requested written 

documentation from Citigroup detailing its repayment proposal. Late that day, Citigroup sent FRBNY a 

repayment proposal. This was the first repayment proposal following the November 2009 stress test. The 

proposal, and all subsequent proposals, requested to fully repay all $20 billion in Citigroup TIP trust 

preferred securities and to terminate Citigroup’s involvement in AGP. Citigroup proposed raising capital 

through: 

 $15 billion in common stock, 

 $2.25 billion in a common stock overallotment option,69

 $2.5 billion in tangible equity units,70 of which $2 billion would count as common, and 

 $1 billion in employee stock options. 

The cumulative common capital to be raised was estimated to be up to $20.25 billion. The proposal had a 

pro forma financial summary that depicted the expected impact of the repayment. The proposal stated that 

the portion of the $7 billion in AGP trust preferred securities that would be surrendered by the Government 

as a result of early termination of the guarantee would be “determined by good faith negotiations at a later 

date.” FRBNY responded by informing Citigroup that the capital raise detailed in the proposal did not 

contain enough common equity.

On Thursday, December 10, 2009 – one day after Citigroup submitted the previous proposal to FRBNY – 

Citigroup submitted a second similar, but more conservative, proposal. The types of capital that Citigroup 

hoped to raise were identical, but the amounts were increased to: 

 $17 billion in common stock, 

 $2.55 billion in a common stock overallotment option, 

 $3.5 billion in tangible equity units, of which $2.8 billion would count as common, and 

 $1.7 billion in employee stock options. 

The cumulative common capital raise was estimated to be up to $24.05 billion. Citigroup also reiterated its 

suggestion that the portion of AGP trust preferred securities to be surrendered would be negotiated at a later 

date. An FRBNY official told SIGTARP that at the time FRBNY considered the amount of capital to be 

adequate but was concerned that Citigroup might not be able to fill its overallotment option, which was 

dependent on future market demand. In light of this concern, FRBNY informed Citigroup that the next 

repayment proposal should include a clause stipulating actions that Citigroup would need to take in the 

event the overallotment was not sufficiently filled. 

 

69 An overallotment option, called a “green shoe,” would allow Citigroup’s underwriters to sell more common stock if the initial 

amount is sold out. In this case, the overallotment option allows the underwriters to sell up to 15% more than the base 

allotment of $15 billion, for an overallotment of $2.25 billion. 70 The tangible equity units consisted of a stock purchase contract and a junior subordinated amortizing note. The stock purchase 

contract has a settlement date of December 15, 2012, and will settle for between 25.3968 and 31.7460 shares of Citigroup 

common stock. The amortizing notes will pay holders equal quarterly installments of $1.875 per amortizing note, totaling a 

7.5% cash payment per year for each $100 of tangible equity units. The final payment is scheduled for December 15, 2012. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 37

 

On Sunday, December 13, 2009, Citigroup submitted its final proposal to FRBNY. The proposed types and 

amounts of the capital raise in this proposal matched the December 10 proposal. Unlike previous proposals, 

the December 13 proposal included capital raise conditions and the amount of AGP trust preferred securities 

to be surrendered. Citigroup’s proposal included an acknowledgment that “...if the offering of common 

stock and tangible equity units do not generate at least $21.3 billion of additional equity capital, the 

regulators would expect Citigroup to issue additional trust preferred securities in a ratio of $2 for every $1 

the equity raised falls short of $21.3 billion, subject to a minimum equity raise of $19.8 billion, up to a 

maximum of $3.0 billion of trust preferred securities during the first quarter of 2010.” Citigroup would 

have to fill at least $1.5 billion of the overallotment option in order to satisfy the $21.3 billion requirement. 

As described below, Citigroup was not able to fill the overallotment option and ultimately would raise trust 

preferred securities in the first quarter of 2010 to meet the capital raise requirements. 

The December 13 proposal also included a provision for the Government to surrender $1.8 billion of AGP 

trust preferred securities in exchange for early termination of AGP, which resulted from separate 

negotiations with Treasury. Treasury told SIGTARP that initially Citigroup proposed a “straight-line 

method” by which the Government would surrender a percentage of the AGP trust preferred securities 

commensurate with the percentage of the original 10-year term remaining at the date of termination – 

roughly 90%, or $6.2 billion. Treasury considered Citigroup’s “straight-line proposal” to be “entirely 

unacceptable.” 

Instead, the Government took the position that the overwhelming majority of the value of the AGP was in 

the first few weeks of its existence, when the guarantee helped Citigroup avoid collapse, and that therefore, 

only a small portion of the AGP trust preferred securities should be surrendered. Treasury also told 

SIGTARP that it would agree to the terms only if the transaction enhanced the value of its TARP portfolio. 

According to Treasury, the terms accomplished this by removing the full liability of Treasury’s $5 billion 

loss position in the ring-fence while surrendering less than half of the corresponding $4 billion in AGP trust 

preferred securities. Ultimately, the Government and Citigroup came to agree that the Government would 

surrender $1.8 billion of the AGP trust preferred securities. Treasury surrendered $1.8 billion out of its $4 

billion allocation and may also receive $800 million from FDIC upon Citigroup’s exit from TLGP, 

described below. 

The Government kept the other $5.3 billion in Citigroup trust preferred securities as payment for its 

guarantee of the asset pool for one year. According to the final Citigroup repayment proposal submitted to 

FRBNY on December 13, 2009, Citigroup expected a $1.1 billion capital benefit to result from the $1.8 

billion in AGP trust preferred securities that the Government surrendered. With this $1.1 billion benefit 

added to the expected capital raise of $24.05 billion, Citigroup expected its proposal would generate up to 

$25.15 billion in capital to replace the TIP capital. FRBNY and FRB staff analyzed Citigroup’s final 

proposal and submitted their analysis to FRB’s Governors.

On Monday, December 14, 2009 – one day after Citigroup submitted its final proposal – FRB sent Citigroup 

a letter indicating FRB approved Citigroup’s final request to repay the TIP capital and terminate AGP. The 

letter also detailed the conditions Citigroup would need to meet to exit the two programs. On the same day, 

a Citigroup press release announced the approval of its repayment of TIP and termination of its involvement 

in AGP – just 27 days after the finalization of the asset pool. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 38

 

On Wednesday, December 16, 2009 – two days after receiving approval for repayment – Citigroup priced 

its offering and announced the details of the corresponding capital raise, which Citigroup began executing 

that same day (see Appendix G). The press release said that Citigroup planned to issue 5.4 billion common 

shares priced at $3.15 per share, and generate proceeds of about $17 billion. Citigroup also announced the 

offering of 35 million tangible equity units, priced at $100 per unit. The tangible equity unit offering was to 

generate total net proceeds of $3.5 billion (approximately $2.8 billion of which would count as equity 

capital). The combined issuance satisfied the minimum initial $19.8 billion capital issuance requirement. 

The press release also noted that Treasury agreed not to sell any of its 7.7 billion shares of common stock 

for the following 90 days. “The combined offering of common stock and tangible equity units is the largest 

public equity offering in U.S. capital market history,” Citigroup said. 

On December 23, 2009, Citigroup, Treasury, FDIC, and FRBNY all signed the Termination Agreement for 

Citigroup’s participation in AGP. That same day, Treasury and Citigroup also signed an agreement for the 

repayment of TIP. The Termination Agreement states: “On December 22, 2009, Citigroup completed an 

offering of common stock and mandatory convertible preferred stock as contemplated by the Federal 

Reserve Conditional Approval.” 

However, Citigroup did not meet the $1.5 billion overallotment option necessary to satisfy the total 

$21.3 billion additional equity capital requirement. Instead, Citigroup raised only $0.6 billion from the 

overallotment, resulting in a $0.9 billion capital shortfall and a need to raise at least $1.8 billion in 

additional trust preferred securities during the first quarter of 2010. Citigroup was required to raise $2 of 

trust preferred securities for every $1 it fell short. In March 2010, Citigroup raised $2.3 billion in trust 

preferred securities thereby satisfying the capital raise requirement. 

TARP’s Remaining Citigroup Investment

On March 16, 2010, Treasury’s agreement not to sell its Citigroup common stock for 90 days expired and 

Treasury announced that it would sell the Citigroup common stock it held as a result of its CPP investment. 

Treasury had agreed not to sell Citigroup stock during those 90 days to facilitate an equity offering initiated 

by Citigroup on December 16, 2009, which enabled Citigroup to raise funds and exit TIP. In exchange for 

the 90-day lock-up period, Citigroup agreed to pay all costs associated with the sale of any securities issued 

to Treasury by Citigroup or any of its subsidiaries. Treasury hired Morgan Stanley as its capital markets 

advisor in connection with its disposition of its Citigroup common stock. On March 29, 2010, Treasury 

stated that, under a prearranged written trading plan, it would sell its Citigroup common shares in an 

“orderly and measured” fashion over the course of 2010, subject to market conditions. See Table 4 below 

for a list of Treasury’s disposition of its entire stake of Citigroup common stock. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 39

 

TABLE 4 

On September 29, 2010, Treasury entered into an agreement71 with Citigroup to exchange the entire 

$2.234 billion in Citigroup trust preferred securities that it held under AGP for new trust preferred 

securities. Because the interest rate necessary to receive par value was below the interest rate paid by 

Citigroup to Treasury, Citigroup increased the principal amount of the securities sold by Treasury an 

additional $12 million and thereby enabling Treasury to receive total gross proceeds of $2.246 billion from 

the sale of the Citigroup trust preferred securities, which occurred on September 30, 2010. This sale did not 

include the $800 million in AGP trust preferred securities held by FDIC for Treasury’s benefit. FDIC is 

required to turn over those securities to Treasury unless it incurs losses on Citigroup debt that was 

guaranteed by FDIC under the TLGP. The sale also did not include the warrants for Citigroup’s common 

stock that were issued as part of Citigroup’s participation in AGP and other Treasury programs. Any 

proceeds from the ultimate sale of those securities will represent additional gains to the taxpayer. 

 

71 As part of its agreement to facilitate the sale of Treasury’s trust preferred securities, Citigroup agreed to either increase the 

interest rate on the new trust preferred securities so that Treasury would receive par value for the sale or increase the aggregate 

principal amount of the securities to conform to what otherwise would be considered a premium to par, if the interest rate 

necessary to sell at par value was below the interest rate paid by Citigroup to Treasury prior to the sale. 

CPP CITIGROUP COMMON STOCK DISPOSITION, AS OF 12/10/2010

Date 

Number of

Shares (Millions)

Average Share

Price (Dollars)c

Gross Proceeds

($ Millions)

4/26/2010 to 5/26/2010 1,500 $4.12 $6,182.5

5/26/2010 to 6/30/2010 1,109 3.90 4,322.7

7/23/2010 to 7/31/2010 a 226 4.12 934.0

8/1/2010 to 8/31/2010 a 680 3.85 2,615.0

9/1/2010 to 9/30/2010 a 594 3.91 2,314.5

10/19/2010 to 12/6/2010 1,166 4.26 4,967.9

12/6/2010 to 12/10/2010 2,417 4.35 10,515.7

Total b 7,692 $4.14 $31,852.3

Notes: Numbers may not total due to rounding. 

a Treasury reported in the Monthly 105(a) Report individual figures for July and August for the number of shares, average share 

price, and gross proceeds. The 105(a) Report did not report individual figures for September, which are calculated above by adding 

number of shares and gross proceeds from July and August and subtracting those figures from total number of shares and gross 

proceeds sold from 7/23/2010 to 9/30/2010 as reported in the September 105(a) Report. Average share price for September was 

calculated by dividing September gross proceeds by the number of shares. 

b Total amounts appear for Number of Shares and Gross Proceeds. Average Share Price is an average for sales between 4/26/2010 

to 12/6/2010. 

c

 Average price for all sales of Citigroup common stock made by Treasury over the course of the corresponding period. 

Sources: Treasury, response to SIGTARP data call, 10/21/2010; Treasury, Transactions Report, 9/30/2010; Treasury, “Troubled 

Assets Relief Program (TARP), Monthly 105(a) Report,” 8/2010, Treasury, Transactions Report, 12/8/2010 

www.financialstability.gov/docs/105CongressionalReports/August%202010%20105(a)%20Report_final_9%2010%2010.pdf, 

accessed 9/29/2010; Treasury, “Troubled Assets Relief Program (TARP), Monthly 105(a) Report,” 7/2010, 

www.financialstability.gov/docs/105CongressionalReports/July%202010%20105(a)%20Report_Final.pdf, accessed 9/29/2010; 

Treasury, 105(a) Report, 9/30/2010; http://financialstability.gov/docs/transaction-reports/12-8-

10%20Transactions%20Report%20as%20of%2012-6-10.pdf, accessed 12/9/2010, Treasury, 105(a) Report, 12/6/2010. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 40

 

TABLE 5 

According to Treasury, it has realized a profit of approximately $12 billion72 over the course of Citigroup’s 

participation in AGP, TIP, and CPP.

 

72 According to Treasury’s most recent transactions report and dividends and interest report

(http://www.financialstability.gov/latest/reportsanddocs.html), the total amount of cash inflows Treasury has realized to date in 

excess of its cash outflows is $12.04 billion. Treasury is also scheduled to receive $800 million in trust preferred securities 

from FDIC after it extinguishes the TLGP (reduced by any losses in the program in connection with Citigroup’s participation) 

and additional proceeds from selling its Citigroup warrants. The $12.04 billion includes $6.85 billion in CPP gains; 

$2.25 billion in AGP proceeds; and $2.94 billion in dividends. 

TREASURY’S CITIGROUP HOLDINGS AS OF DECEMBER 10, 2010

TARP Program 

Number of 

Shares of 

Common Stock 

Common Stock 

Warrants for 

Number of Shares

(Millions) 

Trust Preferred 

Securities 

(at Par Value) 

CPP - 210.1a - 

AGP - 66.5 - 

TIP - 188.5 - b

Note: Numbers affected by rounding. 

a

 On 6/9/2009, Treasury entered into an agreement with Citigroup to exchange up to $25 billion of 

Treasury's CPP investment in Fixed Rate Cumulative Perpetual Preferred Stock, Series H (CPP 

Shares) "dollar for dollar" in Citigroup's Private and Public Exchange Offerings. On 7/23/2009 and 

7/30/2009, Treasury exchanged a total of $25 billion of the CPP shares for Series M Common 

Stock Equivalent (“Series M”) and a warrant to purchase shares of Series M. On 9/11/2009, 

Series M automatically converted to 7,692,307,692 shares of common stock and the associated 

warrant terminated on receipt of certain shareholder approvals. 

b Treasury is also entitled to receive up to $800 million in TruPS® held by FDIC that FDIC is 

required to turn over to Treasury unless it incurs any losses on debt of Citigroup guaranteed by 

FDIC under the Temporary Liquidity Guarantee Program. 

Source: SIGTARP analysis of data. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 41

 

Conclusions 

In November 2008, Citigroup teetered on the brink of failure. Even though it had received $25 billion from 

TARP’s Capital Purchase Program just weeks earlier, it was the subject of a global run on its deposits, its 

stock was in a nosedive as short sellers sought to profit on the market’s perception of its deteriorating 

condition, and the cost of insuring its debt in the credit default swap market was increasing at an alarming 

pace compared to its peers. Worried that Citigroup would fail absent a strong statement of support from the 

U.S. Government, and that such failure could cause catastrophic damage to the economy, then-Treasury 

Secretary Henry Paulson and then-FRBNY President Timothy Geithner held a series of discussions with 

FRB Chairman Ben Bernanke, FDIC Chairman Sheila Bair, and then-Comptroller of the Currency John 

Dugan to discuss bailing out Citigroup. The underlying premise of these discussions was that Citigroup was 

too systemically significant to be permitted to collapse. According to Chairman Bernanke, it was “not even 

a close call to assist them.” 

By late on November 23, 2008, following a frantic few days dubbed by its participants as “Citi Weekend,” 

Citigroup had agreed to a Government proposal that would provide Citigroup a package that included asset 

guarantees and a $20 billion capital infusion in exchange for preferred shares of Citigroup stock. The 

essential purpose of the deal, as Secretary Paulson and FRBNY President Geithner later confirmed to 

SIGTARP, was to assure the world that the Government would not let Citigroup fail. After the deal was 

announced, the impact on the market’s perception of Citigroup was immediate: its stock price stabilized, its 

access to credit improved, and the cost of insuring its debt declined. Citigroup had been saved, at least for 

the time being. Just over a year later, Citigroup terminated the guarantee program and repaid the $20 billion 

of Government-supplied capital. 

SIGTARP found that the Government constructed a plan that not only achieved the primary goal of 

restoring market confidence in Citigroup, but also carefully controlled the overall risk of Government loss 

on the asset guarantee. Citigroup’s initial proposal, which would have had the Government guarantee 100% 

of $306 billion of troubled assets in return for $20 billion in preferred stock, was summarily rejected. 

Instead, the Government made a take-it-or-leave-it proposal that required Citigroup to absorb the first $37 

billion73 in losses in the asset pool as well as 10% of any losses in excess of that amount in return for 

approximately $7 billion in Citigroup preferred stock. The Government’s risk of loss, in other words, was 

dramatically less than it would have been under the Citigroup proposal. Indeed, based on various loss 

projections, the relevant Government actors – Treasury, FDIC, and FRBNY – believed that Citigroup’s 

initial loss position would render any Government loss unlikely. In the end, Citigroup absorbed all of the 

losses among the guaranteed assets, which totaled $10.2 billion at the time of the termination of the asset 

guarantee, far less than Citigroup’s “deductible.” 

As one FRBNY official explained to SIGTARP, the deal was structured to “convinc[e] the skittish market 

that the Federal Government was taking the risk, even though the risk really remained with Citigroup,” 

because the Citigroup loss position ultimately exceeded anticipated losses. In addition to the asset 

guarantee, the Government also insisted on a $20 billion capital injection in return for preferred stock, even 

though Citigroup did not request such an injection. Here, too, the focus was on sending a message to 

reassure the markets – the Government would not let Citigroup fail. 

 

73 This was later raised to $39.5 billion. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 42

 

That the Government drove a particularly hard bargain on behalf of taxpayers was reflected in the reaction 

of many within Citigroup. Citigroup executives were concerned that the Government’s terms were too 

expensive in light of the assistance provided, and some Citigroup insiders recommended against accepting 

the proposal. In the end, however, Citigroup accepted the deal, chiefly because of its expected impact on 

the market’s perception of Citigroup’s viability. 

While the parties announced their preliminary agreement on the framework of the asset pool guarantee on 

November 23, 2008, they did not finalize the list of assets covered by the guarantee until almost one year 

later. The eventual selection of assets for inclusion in the pool was driven largely by Government-imposed 

criteria, the application of which, along with accounting adjustments, led to approximately $100 billion in 

changes from the assets originally proposed by Citigroup. These changes had the effect of reducing the 

expected loss of the guaranteed asset pool, according to Citigroup’s internal calculations, by over $9 billion. 

As a result, the likelihood that the Government would have to cover losses on the guarantee was reduced 

even further. As one Citigroup official explained, “We were getting less from the Government for the same 

pay, [but] we proceeded because we were stuck with the deal.” 

From the perspective of minimizing taxpayer risk on the asset guarantee transaction itself, the deal with 

Citigroup looks even better with hindsight. Citigroup did not fail, and the global economy avoided the 

catastrophic financial collapse that many feared would flow from a Citigroup failure. And while the 

transactions hardly solved all of Citigroup’s problems – just months later the Government was compelled to 

significantly restructure its ownership interest in a manner that left Treasury as Citigroup’s single largest 

common stockholder – the Government incurred no losses, and even profited on its overall investment in 

Citigroup by more than $12 billion. Nevertheless, two aspects of the Citigroup rescue bear noting. 

First, the conclusion of the various Government actors that Citigroup had to be saved was strikingly ad hoc. 

While there was consensus that Citigroup was too systemically significant to be allowed to fail, that 

consensus appeared to be based as much on gut instinct and fear of the unknown as on objective criteria. As 

Secretary Paulson stated on one of the Citi Weekend conference calls, “If Citi isn’t systemic, I don’t know 

what is.” FDIC Chairman Bair told SIGTARP that “we were told by the New York Fed that problems 

would occur in the global markets if Citi were to fail. We didn’t have our own information to verify this 

statement, so I didn’t want to dispute that with them.” Another FDIC official told SIGTARP that in terms 

of Citigroup’s systemic significance, the FDIC directors and other Government entities “made a judgment 

call.” Citigroup CEO Vikram Pandit summed up the feeling at the time when he told SIGTARP that no one 

knew what the systemic effects of a Citigroup failure would be, and that no one wanted to find out. 

Given the urgent nature of the crisis surrounding Citigroup, the ad hoc character of the systemic risk 

determination is not surprising, and SIGTARP found no evidence that the determination was incorrect. 

Nevertheless, the absence of objective criteria for reaching such a conclusion raised concerns. ThenDirector of the Office of Thrift Supervision John Reich, at FDIC’s Board meeting on November 23, 2008, in 

which FDIC made its determination to proceed with the Citigroup transactions, observed that there had been 

“some selective creativity exercised in the determination of what is systemic and what’s not,” and that there 

“has been a high degree of pressure exerted in certain situations, and not in others, and I’m concerned about 

parity.” Concerns about “selective creativity” and “parity” could be addressed at least in part by the 

development, in advance of the next crisis, of clear, objective criteria and a detailed road map as to how 

those criteria should be applied. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 43

 

Secretary Geithner told SIGTARP that he believed creating effective, purely objective criteria for evaluating 

systemic risk is not possible: “What size and mix of business do you classify as systemic?...It depends too 

much on the state of the world at the time. You won’t be able to make a judgment about what’s systemic 

and what’s not until you know the nature of the shock” the economy is undergoing. Secretary Geithner also 

suggested that whatever objective criteria were developed in advance, markets and institutions would adjust 

and “migrate around them.” If the Secretary is correct, then systemic risk judgments in future crises will 

again be subject to concerns about consistency and fairness, not to mention accuracy. The Dodd-Frank Wall 

Street Reform and Consumer Protection Act (“Dodd-Frank Act”) created the Financial Stability Oversight 

Council (“FSOC”) and charged it with responsibility for developing the specific criteria and analytical 

framework for assessing systemic significance. That process is under way, with FSOC having invited 

public comment on those issues. SIGTARP remains convinced that even if some aspects of systemic 

significance are necessarily subjective and dependent on the nature of the crisis at the time, an emphasis on 

the development of clear, objective criteria in advance of the next crisis would significantly aid decision 

makers likely to be burdened by enormous responsibility, extreme time pressure, and uncertain information. 

Moreover, FSOC must be transparent about how it will apply both objective and subjective criteria to a 

failing institution, and must seek to gauge the market and adjust the criteria in the event that firms do indeed 

seek to “migrate around them.” Without minimizing the legitimate concerns raised by Secretary Geithner, it 

is imperative that FSOC not simply accept the adaptability of Wall Street firms to work around regulation, 

but instead maintain the flexibility to respond in kind. 

Second, the Government’s actions with respect to Citigroup undoubtedly contributed to the increased moral 

hazard that has been a direct byproduct of TARP. While the year-plus of Government dependence left 

Citigroup a stronger institution than it had been, it remained, and arguably still remains, an institution that is 

too big, too interconnected, and too essential to the global financial system to be allowed to fail. Indeed, a 

senior FRBNY official told SIGTARP in January 2010 (before the passage of the Dodd-Frank Act), that 

Citigroup was then still “too big to fail,” and that if history repeated itself there is “no question we would do 

it again...[with] a similar or different program.” Citigroup’s creditors and counterparties were left largely 

unscathed by its need for repeated assistance from taxpayers, and the concern voiced by Chairman Bair on 

February 22, 2009, for the need for management changes “at the top of the house” at Citigroup, arguably 

was not fully addressed. While there have been notable changes at the board level and some changes in 

management, some of those in Citigroup’s senior management who came to the Government seeking 

assistance in 2008 remain in place. 

When the Government assured the world in 2008 that it would use TARP to prevent the failure of any major 

financial institution, and then demonstrated its resolve by standing behind Citigroup, it did more than 

reassure troubled markets – it encouraged high-risk behavior by insulating the risk takers from the 

consequences of failure. Unless and until institutions like Citigroup are either broken up so that they are no 

longer a threat to the financial system, or a structure is put in place to assure that they will be left to suffer 

the full consequences of their own folly, the prospect of more bailouts will potentially fuel more bad 

behavior with potentially disastrous results. Notwithstanding the passage of the Dodd-Frank Act, which 

does give FDIC new resolution authority for financial companies deemed systemically significant, the 

market still gives the largest financial institutions an advantage over their smaller counterparts. They are 

able to raise funds more cheaply, and enjoy enhanced credit ratings based on the assumption that the 

Government remains as a backstop. Specifically, creditors who believe that the Government will not allow 

such institutions to fail may under price their extensions of credit, giving those institutions access to capital 

at a price that does not fully account for the risk created by their behavior. Cheaper credit is effectively a 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 44

 

subsidy, which translates into greater profits, giving the largest financial institutions an unearned advantage 

over their smaller competitors. And because of the prospect of another Government bailout, executives at 

such institutions might be motivated to take greater risks than they otherwise would, shooting for a big 

payoff but with reason to hope that if things went wrong they might still be able to keep their jobs. 

The moral hazard effects of TARP in general and the bailouts of Citigroup in particular may eventually be 

ameliorated by full implementation of the provisions of the Dodd-Frank Act, which was intended in part to 

address the problem of institutions that are “too big to fail.” Whether it will do so successfully remains to 

be seen, with important work by FDIC, FSOC, and a host of other regulators far from complete. Even after 

those bodies develop and implement new rules and regulations authorized by the Dodd-Frank Act, which 

would prohibit some of the benefits received by Citigroup under TARP, taxpayers likely won’t know about 

the extent of their continuing exposure until the next crisis. As Secretary Geithner told SIGTARP in 

December 2010, with the Dodd-Frank Act, the “probability of failure is reduced because the banks hold 

more capital. The size of the shock that hit our financial system was larger than what caused the Great 

Depression. In the future we may have to do exceptional things again if we face a shock that large. You 

just don’t know what’s systemic and what’s not until you know the nature of the shock. It depends on the 

state of the world – how deep the recession is. We have better tools now, thanks to Dodd-Frank. But you 

have to know the nature of the shock.” 

Secretary Geithner’s candor about the difficulty of determining “what’s systemic and what’s not until you 

know the nature of the shock,” and the prospect of having to “do exceptional things again” in such an 

unknowable future crisis is commendable. At the same time, it underscores a TARP legacy, the moral 

hazard associated with the continued existence of institutions that remain “too big to fail.” It also serves as 

a reminder that the ultimate cost of bailing out Citigroup and the other “too big to fail” institutions will 

remain unknown until the next financial crisis occurs. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 45

 

Management Comments and Audit Response 

Treasury provided an official written response to this audit report in a letter dated January 12, 2011, which 

is reproduced in full in Appendix L. Treasury’s response broadly concurred with the report. FDIC 

provided an official written response to this audit report in a letter dated January 12, 2011. FDIC’s letter 

offers four “clarifications” to the report. While SIGTARP has not incorporated FDIC’s suggested changes, 

the letter is reproduced in full in Appendix L. FRB stated that it intends to provide an official written 

response in the near future, a copy of which, if available, will be included in SIGTARP’s upcoming 

Quarterly Report and will be added to the online version of this audit report. OCC stated that it would not 

be providing a formal response. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 46

 

Appendix A − Scope and Methodology 

We performed this audit under the authority of Public Law 110-343, as amended, which also incorporates 

the duties and responsibilities of inspectors general under the Inspector General Act of 1978, as amended. 

We initiated this audit at the request of former Congressman Alan Grayson. The audit’s specific 

objectives74 were to determine the basis on which the Government’s decision was made to provide 

Citigroup with additional assistance, how the $301 billion asset pool was determined, and the basis for the 

decision to allow Citigroup to terminate the AGP and repay its TIP capital infusion. We performed work at 

Treasury’s Office of Financial Stability, FRB, FDIC, and OCC in Washington, D.C. We also performed 

field interviews at Citigroup, FRBNY, and OCC in New York City. The scope of this audit covered 

documents, records, and official testimony pertaining to Citigroup’s involvement in Treasury’s TIP and 

AGP. 

To determine the basis on which the Government’s decision to provide Citigroup with additional assistance 

was made, we interviewed Treasury, FRB, FRBNY, FDIC, OCC, and Citigroup senior officials. Among 

those interviewed were the former Secretary of the Treasury Henry Paulson, the former Interim Assistant 

Secretary of the Treasury for Financial Stability Neel Kashkari, the Chairman of the Board of Governors of 

the Federal Reserve System Ben Bernanke, FDIC Chairman Sheila Bair, Comptroller of the Currency John 

Dugan, and Citigroup CEO Vikram Pandit. We also reviewed available Treasury, FRBNY, FDIC, OCC, 

and Citigroup documentation – including analyses, reports, memos, meeting minutes, documents, emails, 

press releases – pertaining to the creation of the AGP and TIP. In addition, we reviewed Sections 101 and 

102 of EESA and the American Recovery and Reinvestment Act of 2009 to obtain an understanding of the 

legal authority given to Treasury with regard to TIP and AGP. 

To establish how the $301 billion asset pool was determined, we interviewed Treasury, FRBNY, and 

Citigroup officials – which included former Secretary Paulson, FRBNY Chief Counsel Tom Baxter, 

Citigroup Vice Chairman Kelly, and Citigroup Chief Risk Officer Brian Leach – and reviewed their email 

exchanges to determine their roles in creating the asset pool. We also held interviews with key decision 

makers from FRB, FDIC, and Treasury regarding asset pool policy decisions. We also interviewed PwC 

and BlackRock officials. In addition, we obtained analyses and reports BlackRock prepared in conjunction 

with the due diligence and valuation procedures they performed on the asset pool. We also utilized several 

SEC filings and FRB reporting forms. We also obtained documentation including, but not limited to emails, 

spreadsheets, and Word documents from Treasury, Citigroup, and FRBNY that were used to determine how 

and why assets were selected. 

 

74 The objectives for this audit were updated in January 2010 to reflect the repayment of TIP and the termination of AGP, as well

as to remove the risk management and internal controls objective (i.e., objective 3). Objective 3 was addressed in SIGTARP’s 

report titled “Treasury’s Monitoring of Compliance with TARP Requirements by Companies Receiving Exceptional 

Assistance” issued June 29, 2010. The original objectives were to determine the following: (1) the basis on which the decision

was made to provide asset guarantees to Citigroup, and the process for selecting the loans and securities to be guaranteed; 

(2) what were the characteristics of the assets deemed to be eligible to be “ring-fenced”, i.e., covered under the program, how 

do they compare with other such assets on Citigroup’s books, and what risk assessment measures were considered in their 

acquisition; (3) are effective risk management and internal controls and related oversight processes and procedures in place to

mitigate risks to the Government under this guarantee program with Citigroup; and (4) what safeguards exist to protect the 

taxpayer’s interests in the Government’s investment in the asset guarantees provided to Citigroup, and the extent of losses to 

date. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 47

 

In addition, we reviewed the policies and procedures within the Citigroup AGP Master Agreement that 

Treasury, FRB, FDIC, and Citigroup agreed to follow. To determine the basis for the decision to allow 

Citigroup to terminate the AGP and repay its TIP capital infusion, we conducted interviews with Treasury 

and Citigroup officials – including Citigroup CFO John Gerspach, Vice Chairman Kelly, and Chief Counsel 

Michael Helfer – as well as FRBNY and OCC bank examiners. We also reviewed the results of the SCAP 

stress test and the stress test that FRBNY performed on Citigroup in November 2009, as well as the related 

documentation pertaining to the conditions under which Citigroup would be able to pay back TIP and 

terminate AGP. These documents included, among other things, FRBNY memos, policies, analysis, and 

correspondence with Citigroup. 

This audit was performed in accordance with generally accepted government auditing standards. Those 

standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a 

reasonable basis for our findings and conclusions based on our audit objectives. We conducted our review 

from August 2009 to January 2011. We believe that the evidence obtained during this period of review 

provides a reasonable basis for our findings and conclusions based on audit objectives. 

Limitations on Data 

Some of the individuals involved in the decision to provide Citigroup with additional assistance were no 

longer at Treasury at the time of SIGTARP’s review. As a result, SIGTARP was unable to obtain key 

details from Treasury behind the decision-making process to provide Citigroup with additional assistance. 

In addition, we relied on the judgment of the staff of Treasury, FRB, FRBNY, FDIC, OCC, and Citigroup to 

provide us with complete information for us to perform our review. Other data may exist that we did not 

have the opportunity to review. 

Use of Computer-processed Data 

To perform this audit, we used ring-fence data aggregated by Citigroup’s Management Information 

Systems. To assess the extent to which these systems generate reliable outputs, we interviewed officials of 

PwC, the independent firm contracted by FRBNY to validate the ring-fence assets proposed by Citigroup. 

We reviewed the validation report that Citigroup submitted to FRBNY and found nothing material that 

would impede the use of Citigroup’s ring-fence data on the basis of reliability. 

Internal Controls 

As part of our audit, we examined the Government’s rationale and criteria into the decision to provide 

Citigroup with additional assistance. We also examined the internal controls that the Government agencies 

used to validate the estimates of ring-fence losses, as well as the controls over assets that were included in 

the ring-fence. SIGTARP interviewed officials of BlackRock and PwC, the outside consultants that the 

Government agencies brought in during the AGP creation and monitoring process. 

Prior Coverage 

Congressional Oversight Panel, “NOVEMBER OVERSIGHT REPORT: Guarantees and Contingent 

Payments in TARP and Related Programs,” November 6, 2009. 

Government Accountability Office, “FINANCIAL AUDIT: Office of Financial Stability (Troubled Asset 

Relief Program) Fiscal Year 2009 Financial Statements,” December 9, 2009. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 48

 

Government Accountability Office, “TROUBLED ASSET RELIEF PROGRAM: Additional Actions 

Needed to Better Ensure Integrity, Accountability, and Transparency,” December 2, 2008. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 49

 

Appendix B − Citigroup TARP Capital Changes 

Jan-08 Oct-09 Jan-10

December 31: Citigroup 

issued Treasury $20 billion in 

preferred stock December 23: Citigroup 

repaid $20 billion TIP and 

in conjunction issued 

$20.3 billion in common 

equity throughout 

December 2009 

November 23: The Government entered into an agreement 

with Citigroup to provide a package of guarantees, liquidity 

access and capital

October 28: Citigroup 

issued Treasury $25 

billion in preferred stock 

in CPP

June 9: Citigroup and the 

Government finalized the 

agreement to convert all $25 

billion of CPP preferred stock 

to common stock

January 2: Treasury released the program description for the 

Targeted Investment Program under which the Citigroup capital 

investment, announced Nov. 23 and injected on Dec. 31, was made

Apr-08 Oct-08 Jan-09 Apr-09 Jul-08

January 16: Citigroup 

issued $7.1 billion 

preferred stock ($4 billion 

to Treasury and $3 billion 

to FDIC) in exchange for 

guaranteeing a $301 

billion pool of assets

Jul-09

Source: SIGTARP analysis. 
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Appendix C − Governance and Asset Management Guidelines 

Source: Citigroup. 
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Appendix D − Joint Statement by Treasury, Federal Reserve and 

FDIC on Citigroup 

November 23, 2008 

Washington, DC – The U.S. government is committed to supporting financial market stability, which is a 

prerequisite to restoring vigorous economic growth. In support of this commitment, the U.S. government on 

Sunday entered into an agreement with Citigroup to provide a package of guarantees, liquidity access and 

capital. 

As part of the agreement, Treasury and the Federal Deposit Insurance Corporation will provide protection 

against the possibility of unusually large losses on an asset pool of approximately $306 billion of loans and 

securities backed by residential and commercial real estate and other such assets, which will remain on 

Citigroup’s balance sheet. As a fee for this arrangement, Citigroup will issue preferred shares to the 

Treasury and FDIC. In addition and if necessary, the Federal Reserve stands ready to backstop residual risk 

in the asset pool through a non-recourse loan. 

In addition, Treasury will invest $20 billion in Citigroup from the Troubled Asset Relief Program in 

exchange for preferred stock with an 8% dividend to the Treasury. Citigroup will comply with enhanced 

executive compensation restrictions and implement the FDIC’s mortgage modification program. 

With these transactions, the U.S. government is taking the actions necessary to strengthen the financial 

system and protect U.S. taxpayers and the U.S. economy. 

We will continue to use all of our resources to preserve the strength of our banking institutions and promote 

the process of repair and recovery and to manage risks. The following principles guide our efforts: 

 We will work to support a healthy resumption of credit flows to households and businesses. 

 We will exercise prudent stewardship of taxpayer resources. 

 We will carefully circumscribe the involvement of government in the financial sector. 

 We will bolster the efforts of financial institutions to attract private capital. 

Source: Office of Financial Stability. 

 
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Appendix E – Glossary 

Asset Filters ‒ The Government-defined set of criteria that qualified individual assets for the guaranteed 

portfolio. 

Asset Guarantee Program (“AGP”) ‒ Established under section 102 of EESA, allows the Department of 

the Treasury to assume a loss position with specified attachment and detachment points on certain assets 

held by the qualifying financial institution. The set of insured assets are selected by Treasury and its agents 

in consultation with the financial institution receiving the guarantee. 

Bank Failure ‒ A bank failure is the closing of a bank by a federal or state banking regulatory agency. 

Typically, a bank is closed when it becomes critically undercapitalized or is unable to meet its obligations to 

depositors and others. 

Bank Holding Company ‒ A company that controls a bank. Typically, a company controls a bank through 

the ownership of 25% or more of its voting securities. The Federal Reserve defines a bank holding 

company as any company that directly or indirectly owns, controls, or has the power to vote 25% or more of 

any class of the voting shares of a bank; controls in any manner the election of a majority of the directors or 

trustees of a bank; or is found to exercise a controlling influence over the management or policies of a bank. 

Collateral ‒ An asset pledged by a borrower to a lender until a loan is repaid. 

Collateralized Debt Obligation ‒ A financial instrument that entitles the purchaser to some portion of the 

cash flows from a portfolio of assets, which may include bonds, loans, mortgage-backed securities, or other 

CDOs. 

Commercial Paper ‒ Commercial paper is a short-term unsecured promissory note sold by corporations 

and foreign governments to meet debt obligations such as payroll. For many large, creditworthy issuers, 

commercial paper is a low-cost alternative to bank loans. 

Common Stock ‒ Equity ownership entitling an individual to share in corporate earnings and voting rights. 

Conservatorship ‒ In the case of Fannie Mae and Freddie Mac, conservatorship involved FHFA taking 

control of the companies as authorized by the Housing and Economic Recovery Act of 2008. The powers of 

the board of directors, officers, and shareholders are transferred to FHFA. In a receivership, shareholders 

are permanently terminated, whereas in a conservatorship, shareholder rights are temporarily assumed by 

the controlling entity. 

Counterparty ‒ The other party that participates in a financial transaction. Every transaction must have a 

counterparty. More specifically, every buyer of an asset must be matched with a seller that is willing to sell 

and vice versa. 

Coupon Rate ‒ Interest rate to be paid as a percentage of the face value of the security. For example, if a 

$100 security has an 8% coupon, the owner of the security will receive $8 annually for the life of the 

security. 
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Credit Default Swap ‒ A contract where the seller receives a series of payments from the buyer in return 

for agreeing to make a payment to the buyer when a particular credit event outlined in the contract occurs 

(for example, if the credit rating on a particular bond or loan is downgraded or goes into default). It is 

commonly referred to as an insurance-like product where the seller is providing the buyer protection against 

the failure of a bond. The buyer, however, does not need to own the asset covered by the contract, which 

means it can serve essentially as a “bet” against the underlying bond. 

Credit Default Swap Spread ‒ A CDS is an insurance-like contract in which the seller receives a series of 

payments from the buyer in return for agreeing to make a payment to the buyer if a particular credit event 

outlined in the contract occurs – for example, if a bond or loan goes into default. A CDS spread is stated as 

a percentage of par value that the insurance buyer is willing to pay the insurance seller in exchange for the 

insurance for a specific time period. For the purposes of this report, CDS spreads are stated as annualized 

quarterly payments. The higher the CDS spread, the more expensive it is to buy protection against default, 

reflecting that the market sees that the institution standing behind the bond is more likely to default on its 

obligations. In other words, the greater the spread, the less creditworthy the institution is regarded by the 

market. 

Deposit Run ‒ When large numbers of depositors suddenly demand to withdraw their deposits from a bank. 

This may be caused by a decline in depositor confidence or fear that the bank will be closed by the 

chartering agency. Banks keep only a small fraction of their deposits in cash reserves, and thus, large 

numbers of withdrawals in short periods of time can cause even a healthy bank to have a severe liquidity 

crisis that could cause the bank to be unable to meet its obligations and fail. 

Dilution ‒ A reduction in earnings per share of common stock that occurs through the issuance of additional 

shares or the conversion of convertible securities.

Discount Rate ‒ The discount rate is the interest rate charged to commercial banks and other depository 

institutions on loans they receive from their regional Federal Reserve Bank’s lending facility – also called 

the discount window. The Federal Reserve Banks offer three discount window programs to depository 

institutions: primary credit, secondary credit, and seasonal credit, each with its own interest rate. All 

discount window loans are fully secured. 

Due Diligence ‒ The appropriate level of attention or care a reasonable person should take before entering 

into an agreement or a transaction with another party. In finance, often refers to the process of conducting 

an audit or review of documents/information prior to initiating a transaction. 

FDIC Deposit Insurance ‒ FDIC protects depositors’ funds in the event of the financial failure of their 

bank or savings institution. FDIC deposit insurance covers the balance of each depositor’s account, dollar 

for dollar, up to the insurance limit, including principal and any accrued interest through the date of the 

insured bank’s closing. The standard insurance amount currently is up to at least $250,000 per depositor, 

per insured bank.

FDIC Deposit Insurance Fund ‒ FDIC’s deposit insurance fund consists of premiums already paid by 

insured banks and interest earnings on its investment portfolio of U.S. Treasury securities. No federal or 

state tax revenues are involved. 
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Federal Funds ‒ Funds deposited by commercial banks at the Federal Reserve banks, thereby enabling 

banks temporarily falling short of reserve requirements to borrow funds from banks with excess reserves. 

Liquidity ‒ The ability to easily convert an asset to cash, without any significant loss in value or transaction 

cost. 

Mandatorily Convertible Preferred Stock ‒ Preferred shares that can be converted to common stock at 

the issuer’s discretion if specific criteria are met by a certain date. 

Memorandum of Understanding ‒ A written but non-contractual agreement between two or more 

agencies or other parties to take a certain course of action. 

Moral Hazard ‒ A term used in economics and insurance to describe the lack of incentive individuals have 

to guard against a risk when they are protected against that risk (for example, through an insurance policy). 

In the context of TARP, it refers to the danger that private-sector executives/investors/lenders may behave 

more recklessly, believing that the Government has insulated them from the risks of their actions. 

Nationalization ‒ Nationalization is the acquisition and control of privately owned business by government. 

Non-recourse Loan ‒ A secured loan whereby the borrower is relieved of the obligation to repay the loan 

upon the surrender of the collateral. 

Open Bank Assistance ‒ In an open bank assistance agreement, FDIC provides financial assistance to an 

operating insured bank or thrift determined to be in danger of closing. FDIC can make loans to, purchase 

the assets of, or place deposits in the troubled bank. Where possible, assisted institutions are expected to 

repay the assistance loans.

Preferred Stock ‒ Equity ownership that usually pays a fixed dividend prior to distributions for common 

stock owners but only after payments due to holders of debt and depositors. It typically confers no voting 

rights. Preferred stock also has priority over common stock in the distribution of assets when a bankrupt 

company is liquidated. 

Regulation ‒ The supervision of financial markets and institutions.

Resolution ‒ The term “resolution” throughout this report means a disposition plan for a failed or failing 

institution. It is designed to (1) protect insured depositors, and (2) minimize the costs to the relevant 

insurance fund that are expected from covering insured deposits and disposing of the institution’s assets. 

Resolution methods include purchase and assumption transactions, insured deposit transfer transactions, and 

straight deposit payoffs. A resolution can also refer to an open bank assistance plan provided to an 

institution to help prevent it from failing. 

Ring Fencing ‒ Segregating assets from the rest of a financial institution, often so that the assets’ problems 

can be addressed in isolation. 

Secured Financing ‒ Debt backed or secured by collateral to reduce the risk associated with lending. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 55

 

Solvency ‒ A company’s ability to pay its debts with available cash.

Special Purpose Vehicle ‒ An off-balance-sheet legal entity that holds the transferred assets presumptively 

beyond the reach of the entities providing the assets (i.e., legally isolated). 

Sub Prime ‒ Refers to borrowers who do not qualify for prime interest rates because they exhibit one or 

more of the following characteristics: weakened credit histories typically characterized by payment 

delinquencies, previous charge-offs, judgments, or bankruptcies; low credit scores; high debt-burden ratios; 

or high loan-to-value ratios. 

Systemic Risk ‒ A risk that impacts the entire financial system and real economy, through cascading, 

contagion, and chain-reaction effects.

Systemically Significant ‒ A financial institution whose failure would impose significant losses on 

creditors and counterparties, call into question the financial strength of other similarly situated financial 

institutions, disrupt financial markets, raise borrowing costs for households and businesses, and reduce 

household wealth. 

Tail Risk ‒ A form of portfolio risk that arises when the possibility that an investment will move more than 

three standard deviations from the mean is greater than what is shown by a normal distribution. In terms of 

the Citigroup ring-fence, tail risk referred to a low-probability loss scenario where losses would be severe or 

complete.

Tangible Common Equity ‒ TCE, as defined by Citigroup, represents Common equity less Goodwill and 

Intangible assets (other than Mortgage Servicing Rights (MSRs)) net of the related net deferred taxes. Other 

companies may calculate TCE in a manner different from that of Citigroup. 

Tier 1 Capital ‒ Consists primarily of common equity (including retained earnings), limited types and 

amounts of preferred equity, certain minority interests, and limited types and amounts of trust preferred 

securities. T1 does not include goodwill and certain other intangibles. Certain other assets are also 

excluded from T1. It can be described as a measure of the bank’s ability to sustain future losses and still 

meet depositors’ demands. 

Total Risk-Weighted Assets ‒ A bank’s total assets after adjusting the value of each asset based on the risk 

associated with that asset. 

Trust Preferred Securities ‒ Securities that have both equity and debt characteristics, created by 

establishing a trust and issuing debt to it. 

Warrant ‒ The right, but not the obligation, to purchase a certain number of shares of common stock at a 

fixed price. 
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Appendix F − Definitions of Acronyms 

Acronym Definition 

AGP Asset Guarantee Program 

AIG American International Group 

BHC Bank Holding Company 

CDS Credit Default Swap 

CMBS Commercial Mortgage-Backed Security 

CPP Capital Purchase Program 

EESA Emergency Economic Stabilization Act 

FAS Financial Accounting Standards 

FDIC Federal Deposit Insurance Corporation 

FHFA Federal Housing Finance Agency 

FRB Federal Reserve Board 

FRBNY Federal Reserve Bank of New York 

FSOC Financial Stability Oversight Council 

GTS Global Transaction Services 

MIS Management Information Systems 

MOU Memorandum of Understanding 

OCC Office of the Comptroller of the Currency 

PwC PricewaterhouseCoopers 

RMBS Residential Mortgage-Backed Security 

SCAP Supervisory Capital Assessment Program 

SIGTARP Special Inspector General for the Troubled Asset Relief Program 

SPV Special Purpose Vehicle 

TARP Troubled Asset Relief Program 

TCE Tangible Common Equity 

TIP Targeted Investment Program 

TLGP Temporary Liquidity Guarantee Program 
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Appendix G − Capital Raise Press Release 

Citigroup Inc. (NYSE: C) December 16, 2009

Citi Prices $17 Billion Common Stock Offering and $3.5 Billion of Tangible Equity Units 

Prices Largest U.S. Public Equity Offering in History 

 

Citi to Repay $20 Billion of TARP Trust Preferred Securities, Terminate Loss-Sharing Agreement 

 

U.S. Treasury Extends Lock-Up to 90 Days 

NEW YORK – Citi today announced the pricing of 5.4 billion common shares and 35 million tangible 

equity units as part of its agreement with the U.S. government and its regulators to repay U.S. taxpayers for 

the $20 billion the government holds in TARP trust preferred securities and to terminate the loss-sharing 

agreement with the government. The common stock priced at $3.15 per share, generating net proceeds of 

approximately $17 billion. The tangible equity units priced at $100 each, generating net proceeds of 

approximately $3.5 billion (about $2.8 billion counted as equity.) The combined offering of common stock 

and tangible equity units is the largest public equity offering in U.S. capital markets history. 

Upon completion of the offerings and the repayment of the $20 billion of the TARP trust preferred 

securities and the termination of the loss-sharing agreement, Citi will no longer be deemed to be a recipient 

of "exceptional financial assistance" under TARP. 

The U.S. Treasury (UST) announced it would extend its lock-up period on the sale of its 7.7 billion share 

common equity stake to 90 days from 45 days after the completion of this offering. The UST decided not to 

sell any of its shares in connection with Citi's sale of common stock and tangible equity units. 

The tangible equity units are comprised of a prepaid stock purchase contract and a junior subordinated 

amortizing note. Each stock purchase contract has a settlement date of December 15, 2012 and will settle for 

between 25.3968 and 31.7460 shares of Citi common stock, subject to adjustment as described in the final 

prospectus relating to the offering. The amortizing notes will pay holders equal quarterly installments of 

$1.875 per amortizing note, which in the aggregate will be equivalent to a 7.50% cash payment per year 

with respect to each $100 stated amount of tangible equity units and has a scheduled final installment 

payment date of December 15, 2012. Citigroup has the right to defer installment payments on the amortizing 

notes at any time and from time to time but not beyond December 15, 2015. 

After giving effect to the issuance of the $17 billion in common stock, $3.5 billion of tangible equity units 

and $1.7 billion of stock compensation previously announced by Citi, as well as the repayment of $20 

billion of the TARP trust preferred securities and the termination of the loss-sharing agreement, Citi's pro 

forma Tier 1 capital ratio at the end of the third quarter of 2009 would have been 11.0%, compared with 

12.8%. The company's pro forma Tier 1 common ratio at the end of the third quarter would have been 9.0%, 

compared with 9.1%. 

Citigroup Global Markets Inc. is serving as sole book-running manager of these offerings. Citi has granted 

the underwriters for the common stock offerings an overallotment option to purchase up to 809.5 million 

additional shares of common stock. 
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Appendix H – Citigroup Entities 

 

CITIGROUP’S SIGNIFICANT LEGAL ENTITIES OF SEPTEMBER 30, 2008 

Entity Entity Type Total Assets (millions) % of Total Consolidated Assets

Citigroup Inc. FHC $2,050,131 100% 

Citibank NA 

Citibank Overseas Investment Corp. 

(COIC) 

Lead Bank 

Edge Corp. 

$1,207,007

496,768

58.9% 

24.2% (Consolidated) 

41.2% (Bank) 

Citibank (South Dakota) NA Credit card issuing bank 77,738 3.8% 

Citicorp Tr Bk FSB FSB 15,599 0.8% 

Citigroup Global Markets Holdings Inc. 

Citigroup Global Markets Inc. 

Citigroup Global Markets Limited 

Holding Company for 

Broker/Dealer subs 

US Broker Dealer 

UK Broker Dealer 

118,947

333,445*

190,774*

5.8% 

16.3% 

9.3% 

Citigroup Funding Inc. Funding Subsidiary 

(All guaranteed by Citigroup Inc.)

120,622* 5.9% 

Associates First Capital Corp. 

(Associates) 

CitiFinancial Credit Company (CCC) 

Parent of CCC Funding including

Canadian Commercial Paper (All 

guaranteed by Citigroup Inc.) 

Consumer Finance Company 

All funding guaranteed by 

Citigroup Inc. 

75,343*

59,887*

3.7% 

2.9% 

Citigroup Mexico Holdings LLC 

Banco Nacional De Mexico Sa 

Holding Company for Mexico 

Mexican Bank subsidiary 

24,861*

87,205*

1.2% 

4.3% 

* Total assets for these entities are as of 6/30/2008. Total assets for remaining entities are as of 9/30/2008. 

Note: Numbers affected by rounding. 

Source: Federal Reserve Board of Governors. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 59

 

Appendix I – Citigroup Initial Proposal (November 22, 2008) 

 
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Appendix J – Government’s Term Sheet (November 23, 2008) 
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EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 64

 

Appendix K − Audit Team Members 

This report was prepared and the review was conducted under the direction of Kurt Hyde, Deputy Inspector 

General of Audits and Evaluations, and Clayton Boyce, Acting Assistant Deputy Inspector General of 

Audits and Evaluations, Office of the Special Inspector General for the Troubled Asset Relief Program. 

The staff members who conducted the audit and contributed to the report include: Eric Potocek, John 

Gallagher, Natalie Lentz, and Scott Harmon. 
EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 65

 

Appendix L – Management Comments from Treasury, FDIC, 

and FRB 
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EXTRAORDINARY FINANCIAL ASSISTANCE PROVIDED TO CITIGROUP, INC. 70

 

Note: SIGTARP received FRB’s response after publishing this report on January 13, 2011. 
 

SIGTARP Hotline

If you are aware of fraud, waste, abuse, mismanagement, or misrepresentations associated with the Troubled 

Asset Relief Program, please contact the SIGTARP Hotline. 

By Online Form: www.SIGTARP.gov By Phone: Call toll free: (877) SIG-2009 

By Fax: (202) 622-4559 

By Mail: Hotline: Office of the Special Inspector General

for the Troubled Asset Relief Program

1801 L Street., NW, 4th Floor 

Washington, D.C. 20220

Press Inquiries 

If you have any inquiries, please contact our Press Office: 

Kristine Belisle 

Director of Communications 

Kris.Belisle@do.treas.gov

202-927-8940 

Legislative Affairs 

For Congressional inquiries, please contact our Legislative Affairs Office: 

Lori Hayman 

 Legislative Affairs 

 Lori.Hayman@do.treas.gov

 202-927-8941 

Obtaining Copies of Testimony and Reports 

To obtain copies of testimony and reports, please log on to our website at www.sigtarp.gov.