Wall Street jumped as much as 5 percent by midday after the government agreed to pump $20 billion in Citigroup.
In a new effort to bolster Citigroup: the ailing financial institution will get a $20 billion direct injection of capital, that's on top of the $25 billion already allotted under the Treasury's Troubled Asset Relief Program, commonly referred to as the TARP.
In addition, the government will backstop nearly $306 billion in toxic Citigroup assets.
In return the government will get preferred shares with an 8 percent dividend.
And force Citi to slash its quarterly dividend for regular shareholders to no more than $0.01 a share from $0.16.
Art Hogan is chief market strategist at Jefferies.
SOUNDBITE: Art Hogan, chief market strategist, Jefferies (English) saying:
"What it shows is, unlike the thought process was last week when we thought the TARP was close until a new administration came in, we are looking at a very creative, if you will, hybrid use of the TARP, with both a direct injection of capital and a backstop of some toxic assets."
And that government move has put confidence back into the market, analysts add.
Shares of Citigroup rallied about 60 percent after crumbling below $4 a share last week. And they were not alone, stocks rose over 5 percent across the board by midday.
Analysts say if the latest effort to stabilize Citigroup works -it could be use as a template for other U.S. banks. A notion President Bush played-up as he prepares to pass the baton to President Elect Barack Obama.
SOUNDBITE: U.S. President George W. Bush (English) saying:
"We have made these kinds of decisions in the past, made one last night, and if need be we are going to make these kinds of decision to safeguard our financial system in the future."
A future soon to be in the hands of the President Elect and the new economic team unveiled on Monday.
Conway Gittens, Reuters
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