US rescues ailing Citigroup bank

An update from the BBC on US bank Citigroup. Citigroup's share price has risen 60% today on the news that the US Government has just agreed to

a) Provide $USD20 billion to Citigroup in return for preference shares in the business (a preference share is one that guarantees a fixed dividend)

b) Guarantee up to $306bn of risky loans on Citigroup's financial accounts (remember that banks like Citigroup are blamed for creating the sub-prime loans that are a major cause of the current financial crisis)

The article suggests an economy of scale that we dont often see in a textbook - businesses like Citigroup (and Fanny Mae and Freddir Mac) are seen as "too big to allow to fail".

The recent history of Citigroup

• Shares in Citigroup fell in value by more than 60% last week.



• Citigroup announced an extra 52,000 job losses worldwide (thats on top of 23,000 job cuts they have previously announced)



• Citigroup has lost more than $20bn in the past year because of the global financial crisis, suffering four straight quarterly losses



• Citigroup CEO (Vikram Pandit) and his senior managers have been criticised for failing to fix the banks problems