Late Sunday night, U.S. authorities announced a deal to save troubled banking giant Citigroup Inc.

In a joint statement issued by the US Treasury, Federal Reserve Board, and the Federal Deposit Insurance Corp., the government indicated that it has entered into an agreement with Citigroup to provide a package of guarantees, liquidity access, and capital.

As part of the agreement, Treasury and the FDIC 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.

Also, 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.

The government stressed that it is committed to supporting financial market stability, and suggested that the deal supports this commitment. “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,” they said.

IE