This excerpt taken from the C 8-K filed Jan 16, 2009.
Item 5.02 Compensatory Arrangements of Certain Officers; Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
On January 15, 2009, Citigroup Inc. (“Citigroup”), as part of the loss sharing program previously announced on November 24, 2008, entered into a master agreement (the “Master Agreement”) with the United States Department of the Treasury (the “Treasury”), the Federal Reserve Bank of New York (the “Federal Reserve”) and the Federal Deposit Insurance Corporation (the “FDIC”) relating to the loss sharing by such government entities on $301 billion of Citigroup assets. The loss sharing program will result in an estimated benefit of 150 basis points to Citigroup’s Tier 1 capital ratio.
The assets that are the subject of the loss sharing program include loans and securities backed by residential and commercial real estate, consumer loans and other assets as agreed between Citigroup and the government entities. The loss coverage period terminates in November 2013 with respect to Citigroup’s non-residential assets and in November 2018 with respect to its residential assets. The Master Agreement covers realized losses on the principal amount of the covered assets (e.g., charge-offs, dispositions and failure to pay principal, etc.). Pursuant to the Master Agreement, Citigroup will assume first losses of $29 billion (as agreed on November 23, 2008), plus $1 billion in exchange for excluding benefits from hedges, plus the $9.5 billion existing loan loss reserve, for a total Citigroup first loss position of $39.5 billion. Losses above that amount will be assumed as follows:
The assumption of losses by the Treasury and the FDIC, and the extension of the loan by the Federal Reserve, are subject to certain conditions, including, without limitation, the accuracy of certain representations and warranties made by Citigroup in all material respects, no “event of default” (as defined in the Master Agreement) having occurred and be continuing and other customary conditions. In addition, the Master Agreement provides for guidelines for governance and asset management with respect to the covered asset pool, including reporting requirements and notice and approval rights of the US government
parties at certain thresholds. If realized losses exceed $27 billion, the US government parties have the right to change the asset manager for the covered asset pool.
As consideration for the loss sharing and pursuant to a securities purchase agreement (the “Securities Purchase Agreement”) dated January 15, 2009, Citigroup issued $4.034 billion of perpetual preferred stock to the Treasury, $3.025 billion of perpetual preferred stock to the FDIC, and a warrant to the Treasury to purchase 66,531,728 shares of common stock at a strike price of $10.61. The Securities Purchase Agreement and the preferred stock contain substantially the same limitations on certain actions by Citigroup as those described in Citigroup’s Current Report on Form 8-K filed on December 31, 2008.
The composition of the covered asset pool, amount of Citigroup's first loss position and fee for loss coverage are subject to final confirmation by the US government parties of, among other things, qualification of assets, expected losses and reserves.
On January 15, 2009, Citigroup filed a Certificate of Designations establishing the designation, powers, preferences and rights of the shares of a new series of Citigroup fixed rate cumulative perpetual preferred stock, Series G. The Certificate of Designations amended Citigroup’s Restated Certificate of Incorporation and was effective immediately upon filing.
You should refer to the documents incorporated herein by reference for a complete description of the terms of the Master Agreement, the Securities Purchase Agreement, the preferred stock and the warrant. The Certificate of Designations for the preferred stock is being filed as Exhibit 3.1 to this Form 8-K, the Warrant is being filed as Exhibit 4.1 to this Form 8-K, the Master Agreement is being filed as Exhibit 10.1 to this Form 8-K, the Securities Purchase Agreement is being filed as Exhibit 10.2 to this Form 8-K, the key terms of the loss sharing program are being filed as Exhibit 99.1 to this Form 8-K, a description of the covered assets is being filed as Exhibit 99.2 to this Form 8-K and a summary of the terms of the preferred stock and warrant is being filed as Exhibit 99.3 to this Form 8-K. These documents are incorporated herein by reference in their entirety.