The government disclose a bold plan Sunday to rescue Citigroup, including taking a $20 billion venture in the firm as well as guaranteeing hundreds of billions of dollars in risky assets.

The Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp., jointly announced the action, is aimed at shoring up a huge financial institution whose collapse would cause 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 stock has been hammered in the past week on worries about its financial health.
"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," the three agencies said in a statement issued Sunday night. "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.

It is the most recent in a string of high-profile government bailout efforts. The Fed in March provided financial backing to JPMorgan Chase's buyout of ailing Bear Stearns.The government six months later was forced to take over mortgage giants Fannie Mae and Freddie Mac and throw a financial lifeline — which was recently refigured to insurer American International Group.

Critics worry the procedures could put billions of taxpayers' dollars in danger and encourage financial companies to take excessive risk on the belief that the government will bail them out of their messes.

The $20 billion cash booster 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.

Treasury and the FDIC as part of the plan, 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.

Citigroup Inc. under the loss-sharing arrangement will assume the first $29 billion in losses on the risky pool of assets. The government beyond that amount would absorb 90 percent of the remaining losses, and Citigroup 10 percent. Money from the $700 billion bailout and funds from the FDIC would cover the government's portion of potential losses. The remaining assets with a loan to Citigroup will be financed by the Federal Reserve.

Citigroup, as a condition of the rescue is excluded from paying quarterly dividends to shareholders of more than 1 cent a share for three years unless the company obtains consent from the three federal agencies. The agreement also places restrictions on executive compensation, including bonuses.

The once powerful company had at one time been the largest U.S. bank by assets.
Citigroup 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 unstable — losses that could be nearly impossible to reverse.
Citigroup is a large, interconnected player in the financial system that if it were to collapse would cause further damage to already delicate financial and economic conditions. The company has operations stretching around the globe in more than 100 countries.

Citigroup considered by analysts as the most vulnerable among the major U.S. banks especially after it failed to snitch Wachovia Corp., which was bought instead by Wells Fargo & Co. That was a missed opportunity for Citi to gets its hands on much-needed U.S. deposits that would bolster its cash position.

Citigroup was especially affected by the meltdown in risky, subprime mortgages made to people with stained credit or low incomes. Foreclosures on those mortgages spiked, leaving Citi and other financial companies wracking up huge losses on the soured investments. The company has failed to turn a profit during the past four quarters and has announced plans to cut thousands of jobs.