WASHINGTON — The government unveiled a bold plan Sunday to rescue troubled Citigroup, including taking a $20 billion stake in the firm as well as guaranteeing hundreds of billions of dollars in risky assets.
The action, announced jointly by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp., is aimed at shoring up a huge financial institution whose collapse would wreak havoc on the already crippled financial system and the U.S. economy.
The sweeping plan is geared to stemming a crisis of confidence in the company, whose stocks has been hammered in the past week on worries about its financial health.
The $20 billion cash injection by the Treasury Department will come from the $700 billion financial bailout package.
The capital infusion follows an earlier one — of $25 billion — in Citigroup in which the government received an ownership stake.
In addition, Treasury and the FDIC will guarantee against the “possibility of unusually large losses” on up to $306 billion of risky loans and securities backed by commercial and residential mortgages.
The New York-based company has seen its shares lose 60 percent of their value in the past week, reflecting a crisis of confidence among skittish investors. They are worried all the risky debt on Citigroup’s balance sheet will turn into losses as the economy worsens and the markets stay turbulent — losses that could be nearly impossible to reverse.
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