citigroup open bank assistance unredacted fdic minutes from 23 nov 2008 (lawsuit #2)
Post on 01-Apr-2015
Embed Size (px)
DESCRIPTIONMinutes from the FDIC Board Meeting from 23 November 2008 where approved Citigroup open bank assistance
The Meet ing of the Board of Directors
Federal Deposit Insurance Corporation
By Conference Call
Closed to Public Observation
November 23, 2008 - 10: 04 P.M.
At 10:04 p.m. on Sunday, November 23, 2008, the Chairmancalled a special meeting of the Board of Directors of theFederal Deposit Insurance Corporation which was held by means ofa telephone conference call.
Sheila C. Bair, Chairman of the Board of Directors;Martin J. Gruenberg, Vice Chairman of the Board of Directors;Thomas J. Curry, Director (Appointive); John C. Dugan, Director(Comptroller of the Currency); John M. Reich, Director(Director, Office of Thrift Supervision); John F. Bovenzi,Deputy to the Chairman and Chief Operating Officer; Steven o.App, Deputy to the Chairman and Chief Financial Officer;Jason C. Cave, Acting Deputy to the Chairman; Jesse o.Villarreal, Chief of Staff; Michael H. Krimminger, SpecialAdvisor for Policy, Office of the Chairman; Barbara A. Ryan,Deputy to the Vice Chairman; Lisa K. Roy, Deputy to the Director(Appointive); William A. Rowe, III, Deputy to the Director(Comptroller of the Currency); Claude A. Rollin, Deputy to theDirector (Director, Office of Thrift Supervision); John V.Thomas, Acting General Counsel; Sandra L. Thompson, Director,Division of Supervision and Consumer Protection; Arthur J.Murton, Director , Division of Insurance and Research;Mitchell L. Glassman, Director, Division of Resolutions andReceiverships; Eric J. Spitler, Director, Office of LegislativeAffairs; Andrew S. Gray, Director, Office of Public Affairs; andRobert E. Feldman, Executive Secretary, participated in themeeting.
Also participating in the meeting were: Christopher J.Spoth, John M. Lane, Serena L. Owens, John H. Corston,
Patricia A. Colohan, Pete D. Hirsch, Marc Steckel, and ChristineGrum, from the Division of Supervision and Consumer Protection;Richard T. Aboussie, David N. Wall, and Mark G. Flanigan, fromthe Legal Division; Diane L. Ellis, Miguel D. Browne,Christopher J. Newbury, and Matthew Green, from the Division ofInsurance and Research; James R. Wigand and Herbert J. Held,from the Division of Resolutions and Receiverships; Tiffany K.Froman, from the Division of Information Technology; andAlice C. Goodman, from the Office of Legislative Affairs.
Julie L. Williams, First Senior Deputy Comptroller andChief Counsel; and Douglas W. Roeder, Senior Deputy Comptroller,Large Bank Supervision, Office of the Comptroller of theCurrency, also participated in the meeting.
Chairman Bair presided at the meeting; Mr. Feldman acted asSecretary of the meet ing .
Chairman Bair called the meeting to order. Vice ChairmanGruenberg then moved that the Board of Directors determine thatCorporation business required its consideration of the matterswhich were to be the subj ect of the meeting on less than sevendays' notice to the public; that no earlier notice of themeeting was practicable; that the public interest did notrequire consideration of the matters which were to be thesubject of the meeting in a meeting open to public observation;and that the matters could be considered in a meeting closed topublic observation by authority of subsections (c) (4), (c) (B) ,(c) (9) (A) (ii), and (c) (9) (B) of the "Government in the SunshineAct" (5 U.S.C. 552b( (c) (4), (c) (B), (9) (A) (ii), and (c) (9) (B)) .Chairman Bair seconded the motion and, with Director Reich,Director Curry, and Director Dugan concurring, the motion wascarried.
James R. Wigand, Deputy Director, Franchise and AssetMarketing Branch, Division of Resolutions and Receiverships("DRR"), presented to the Board staff's recommendation that theBoard find that the failure of Citigroup Inc. ("Citigroup") and itsinsured affiliate banks and thrifts would have serious adverseeffects on domestic and international economic conditions andfinancial stability and that Citigroup's failure would seriouslyand negatively affect already disrupted credit markets, includingshort-term interbank lending, counterparty relationships inQualified Financial Contract markets, and bank senior andsubordinated debt markets, and would further disrupt the relatedmarkets in deri vati ve products and other markets. Therefore,stated Mr. Wigand, staff was further recommending that the Board
November 23, 200B (Closed)
make a systemic risk determination and authorize staff to takenecessary steps to implement the provision of Corporationassistance to Citigroup in the manner he would outline to theBoard. Mr. Wigand informed the Board that, based on preliminaryinformation, staff estimates no loss to the Deposit Insurance Fudas a result of the recommended assistance.
Mr. Wigand continued, stating that, in order to prevent theforegoing systemic risks, staff was recommending that the Boardauthorize the Corporation to enter into a transaction to providefor shared loss coverage on a designated pool of assetsapproximately $306 billion in size, along with the U. S. Departmentof the Treasury's ("Treasury") Troubled Asset Relief Program("TARP"), with the Corporation's potential loss protected by theissuance of preferred stock by Citigroup. He added that theCorporation and the TARP will provide guarantees on certainresidential assets for 10 years and certain other assets for aperiod of 5 years. The Corporation, he said, will be exposed toloss only after Citigroup absorbs the first $37 billion in lossesand the TARP absorbs the next $5 billion in losses. Mr. Wigandstated that the Corporation's loss share will be capped at $10billion and it will receive compensation in the form of $3 billionin preferred stock. In addition, he said, the Board of Governorsof the Federal Reserve System ("Federal Reserve") will providecertain financing secured, in part, by assets in a portfolio ofconsumer and commercial loans designated by the Corporation,Treasury, and the Federal Reserve (coli ect i vel y, the "Agenc ies" )and Ci tigroup.
Mr. Wigand next stated that Citigroup and the Agencies willshare losses, with Citigroup having a 10 percent loss share on alllosses in excess of the $37 billion. He explained that the TARPwill take the second loss position up to $5 billion and theCorporation will take the third loss position up to $10 billion,with the loss share of the TARP and the Corporation capped asexplained above and the Federal Reserve taking remaining losses.Mr. Wigand then informed the Board that Citigroup will manage theassets, with instructions provided by the Agencies. Among theinstructions, he specified, will be those requiring use of loanmodification procedures comparable to those introduced by theCorporation on August 20, 2008, at IndyMac Federal Bank, FSB,Pasadena, California, of which the Corporation is conservator,unless otherwise agreed. In addition, Mr. Wigand stated thatCitigroup will be subject to specific limitations on executivecompensation and dividends during the loss share period.
November 23, 2008 (Closed)
Mr. Wigand then informed the Board that the Corporation,the Office of the Comptroller of the Currency ("OCC"), and theOffice of Thrift Supervision ("OTS") have determined that theinsured affiliate banks and thrifts of Citigroup meet therequirements under section 13 (c) (8) of the Federal DepositInsurance Act ("FDI Act") for receiving direct financialassistance before the appointment of a receiver, and thatassistance will increase existing capital levels and improveliquidity.
In exchange for the guarantees Mr. Wigand had described, heexplained that Citigroup has agreed to (1) seek the prior approvalof the Agencies before paying dividends for three years; (2)develop an executive compensation program that rewards long-termperformance and profitability to be approved by the Agencies; and(3) implement loan modification procedures conforming with theCorporation's model used at IndyMac Federal Bank, FSB, formortgages in the asset pool, unless otherwise agreed.Additionally, as Mr. Wigand had previously stated, the Corporationand the TARP will receive preferred stock as reasonablecompensation for the guarantees provided.
Mr. Wigand then requested that John H. Corston, AssociateDirector, Large Institutions and Analysis Branch, ComplexFinancial Institutions, Division of Supervision and ConsumerProtection, provide the supervisory history and condition ofCitigroup and its insured bank and thrift affiliates. Mr.Corston explained that Citibank, National Association, LasVegas, Nevada ("CBNA") is a nationally chartered bank founded in1812 that is the lead bank within Citigroup, a financial holdingcompany regulated by the Federal Reserve; and that CBNA is thethird largest bank in the nation and is the predominant legalentity representing 63 percent of consolidated holding companyassets. He then explained that the remaining insured legalentities of Citigroup consist of an additional two nationalbanks, one federal savings bank, and one state non-member bank,respectively, as follows: Citibank (South Dakota), N.A., SiouxFalls, South Dakota; Department Stores National Bank, SiouxFalls, South, Dakota; Citicorp Trust Bank, fsb, Wilmington,Delaware; and ci tibank (Banamex USA), Century City, California.He then continued, stating that Citigroup is the largestconsumer finance lender in the world, third largest mortgageservicer, and the fourth largest student lender. It is also, hesaid, the world's largest credit card lender and the thirdlargest in the United States as well as one of the world'slargest private banking and private wealth managementbusinesses.
November 23, 2008 (Closed)
Mr. Corston added that Ci tigroup has three principalnonbank subsidiaries: ci tigroup Global Markets Holdings, Inc., abroker-dealer; Citigroup Funding, Inc., the primary fundingvehicle of Citigroup; and Associates First Capital Corporation,the parent company of CitiFinancial, which provides consumerfinance. In addition, he said, there is one foreign bankingsubsidiary-Grupo Financiero de Banamex SA de CV, a Mexicanbanking organization.
Mr. Corston then stated that CBNA engages in extensiveforeign activities and has operations in over 100 countries,operating approximately 1,000 retail branches in 13 states, theDistrict of Columbia, and Guam. He said that CBNA reportedforeign assets of $612 billion and foreign deposits of $554billion held either in direct foreign branches of CBNA or inother foreign entities that are mostly owned by the CBNA' sEdgeAct investment subsidiary, Citibank Overseas Investment Corp.("COIC"). COIC, Mr. Corston explained, has over 20 foreignbanks that are headquartered and chartered in countries aroundthe world.
He then informed the Board that the risk profile of CBNA isincreasing rapidly due to the market's lack of confidence in thecompany and a substantially weakened liquidity position. Inparticular, Mr. Corston said that liquidity has reached crisisproportions, such that the CBNA is projected to be unable tomeet its obligations. Most recently, he said this wasexemplified on Friday, November 21, 2008, when the UnitedKingdom's Financial Services Agency imposed a $6.4 billion cashlockup requirement to protect the interests of the UnitedKingdom broker-dealer.
Mr. Corston then reported that, on Friday, November 21,2008, market acceptance of CBNA's liabilities diminished, as thecompany's stock plunged to a 16-year low; credit default swapspreads widened by 75 basis points to 512.5 basis points; andcounterparties advised that they would require greatercollateralization on any transactions with CBNA.
Mr. Corston next informed the Board that, withoutsubstantial government intervention that results in a positivemarket perception on the morning of Monday, November 24, 2008,OCC and Citigroup project that CBNA will be unable to payobligations or meet expected deposit outflows the followingweek. Citigroup's contractual cash flow projections, he said,
November 23, 2008 (Closed)
show that a total of 7.2 percent deposit run off will result inno cash surplus.
Mr. Corston continued his presentation, stating that currentrequests by Citigroup to the Federal Reserve to expand theCommercial Paper Funding Facility ("CPFF") (created by theFederal Reserve on October 7,2008, to help provide liquidity toterm funding markets) and to expand collateral and entitieseligible for posting to the Primary Dealer Credit Facility("PDCF") and the Term Securities Lending Facility ("TSLF") wouldprovide short - term funding reI ief . However, according to Mr.Corston, the additional funding provided by CPFF, PDCF, and TSLFwould not be sufficient to withstand an extensive depositrunoff.
Mr. Corston then turned to the matter of systemic risk,explaining that it appears likely that any transactionimplemented by the Corporation under a least-cost frameworkwould have significant adverse effects on economic conditionsand the financial markets based on Citigroup's size and themarkets in which it operates. Given Citigroup's significantinternational presence, he said, the effects on money marketliquidi ty could be expected on a global basis. In addition, hestated that term funding markets remain under considerablestress. Mr. Corston said that these pressures have increasedover the past week with a loss of investor confidence infinancial institutions' performance, as evidenced by asignificant drop in bank equity values and another round ofincreases in banks' credit default swap spreads. Citigroup hasbeen particularly vulnerable, Mr. Corston said, with itsexposure to credit and market losses coupled with its dependenceon international operations for funding. He observed that theCorporation is prohibited from taking action that could exposethe Deposit Insurance Fund in a manner that could benefit debtor equity holders of a company without invocation of thesystemic risk exception available under the FDI Act.
Mr. Corston then emphasized that not providing open bankassistance to Citigroup would likely have major systemiceffects. He said that both financial stability and overalleconomic conditions would be adversely affected for the reasonshe had already discussed, and that staff believes theconsequences could extend to the broader economy. Recentdisruptions to global money and credit markets since Septemberand other developments, he said, point to a clear nexus betweenfinancial market turmoil and impaired economic performance thatcould be expected to worsen further if Citigroup and its insured
November 23, 2008 (Closed)
subsidiaries should be allowed to fail. Mr. Corston said thatsuch an event would significantly undermine business andhousehold confidence. In addition, Mr. Corston stated, with theliquidity of banking organizations further reduced and theirfunding costs increased, banking organizations would become evenless willing to lend to businesses and households, therebycontributing to weaker economic performance, further damage tofinancial markets, and other material negative effects.
In creating the systemic risk exception, Mr. Corston statedthat Congress clearly envisioned that circumstances could arisein which the exception should be used. He concluded hispresentation by stating that, in view of the current intensefinancial strains, as well as the likely consequences to thegeneral economy and financial system of a failure to provideopen bank assistance to the third-largest commercial bank in theUnited States, staff believed that circumstances such asCongress envisioned are clearly present and that invocation ofthe systemic risk exception is justified.
John V. Thomas, Acting General Counsel, then clarifiedthat, despite Mr. Corston's reference to a least-cost frameworkresolution of Citigroup having significant adverse effects oneconomic conditions and the financial markets, the actualproblem is not that staff's recommendation is a least-costresolution, inasmuch as the expected cost to the Corporation iszero. Rather, Mr. Thomas said, the problem, i. e., the need forthe Board to make a systemic risk determination to implementstaff's recommended resolution exists because it amounts to theprovision of open bank assistance. Chairman Bair acknowledgedMr. Thomas's point and thanked him for the clarification.
Vice Chairman Gruenberg then stated his support for thecase and expressed his view that the finding of systemic risk isclear and justified. He noted the exceptional cooperation thathad occurred among the Federal bank regulatory agencies andTreasury to do what is necessary to maintain financial stabilityin an extraordinary set of market conditions. He added thatconditions imposed on Citigroup relating to dividends andexecutive compensation, as well as the loan modificationprotocol, are essential components of the case.
Director Curry agreed with Vice Chairman Gruenberg'scomments and added that staff has amply made the case that thesystemic risk determination standard has been met. He indicatedfurther that he hoped that the open bank assistance contemplated
November 23, 2008 (Closed)
by the recommendation is sufficient and that he was prepared tovote in favor of the recommendat ion.
Director Dugan stated that he strongly supported therecommendation, agreeing, as Vice Chairman Gruenberg andDirector Curry had said, that the facts presented amplyjustified the recommendation. He added that the proposal wasnot simply about Citigroup and its insured bank and thriftaffiliates but about confidence in other banks he well. As aresult, he said, it was absolutely critical that the Board actdecisively to take measures to address the circumstancesdescribed. Director Dugan, too, hoped that the assistance to begranted was adequate to accomplish the Agencies' goals and said,that with the combination of the Agencies' resources, he thoughtit would be.
Chairman Bair asked Director Dugan whether OCC had asupervisory strategy for helping to get CBNA and the two othernational bank affiliates of Citigroup (collectively,"Citigroup's national banks") under control again. DirectorDugan responded that the situation was about confidence asopposed to capital in those institutions or their reservelevels. He indicated that OCC will be closely monitoring thesituation and dealing with issues related to supervision, butthat the issue at hand was that of a potential world-wide bankrun needing to be brought under control. Chairman Bair agreedregarding the need to re-instill confidence about banks, but sheadded that the Corporation will look forward to working with accregarding the appropriate supervisory strategy for Citigroup'snational banks. She expressed her understanding that all of theFederal depository institution regulators are committed tomaking sure that Citigroup pursues selling itself or certainparts of itself, but noted that this is not the first time thatCitigroup has become challenged.
Chairman Bair then set out her understanding that Ci tigrouphas a significant off-balance-sheet exposure that could behaving to be come on book at the end of 2009, which couldfurther complicate the situation. She noted that theCorporation has already provided $77 billion in guarantees ofCi tigroup' s unsecured senior debt under the debt guaranteeprogram component of the Temporary Liquidity Guarantee Programinitiated by the Corporation on October 13, 2008, to mitigatethe serious adverse effects on economic conditions or financialstability that would otherwise create systemic risk to thecredit markets. Chairman Bair further noted that theCorporation could ultimately wind up guaranteeing even more of
November 23, 2008 (Closed)
Citigroup's debt unsecured senior debt if Citigroup were toapply for an exception to its debt guarantee limit. Sheobserved how deeply those guarantees place the U. S. government"on the hook." In addition, approving staff's recommendationfrom the instant proposal, which she said is something theBoard's need to do, would involve the Corporation's providingadditional reinsurance on the losses of Citigroup's loanportfolio. Chairman Bair cautioned, however, that theCorporation's and the TARP's financial assistance to Citigroupis not sufficient to right Citigroup as it has significantproblems requiring a very aggressive supervisory strategy.Without the latter, Chairman Bair stated, the Corporation willfind itself needing to infuse additional assistance intoCitigroup.
Director Reich then indicated his support for staff'srecommendation and recognized that systemic risk was involved.In response to a question from Director Reich on Citigroup'scurrent liquidity situation, Douglas W. Roeder, Senior DeputyComptroller, Large Bank Supervision, acc, stated that theliquidity component of CBNA's CALS rating was not less than a"3", given the support CBNA was about to receive from thetransaction on the table at this meeting. Chairmn Bair thenasked how the latter could be so when the acc was on the verge ofhaving to close the Citigroup's national banks because CBNA wasnot going to be able to meet its liquidity needs the morning ofMonday, November 24, 2008. She added that CBNA has $500 billionin foreign deposits that cannot be guaranteed by anyone andrepeated that she could not understand how the acc could rateCBNA's as high as a "3" given the latter circumstances. DirectorDugan responded that the "3" rating for liquidity essentiallyanticipates what the rating will be once the transaction beforethe Board is approved. Chairman Bair responded, in turn, that theCorporation does not use that just-described approach as acriterion in its liquidity ratings and that it is certainly notthe criterion used for the liquidity ratings of other banks. Sheindicated that it is not a good approach to say that aninstitution can receive a "3" rating for liquidity if it couldonly be demonstrated that government assistance would enableadequate liquidity. Then, Director Dugan said that he thought theability to contemplate government assistance enabling aninstitution to achieve adequate liquidity had been the standard.He stated that the fact that CBNA has already received a certainamount of government assistance and the fact that the instantproposal would provide more are factors in evaluating its currentliquidity rating. Further, he said, OCC will adjust and evaluate
November 23, 2008 (Closed)
CBNA's liquidity after it examines what happens once the proposalis actually consummated.
Chairmn Bair said that the just-completed discussion onCBNA's liquidity rating raises again her question as to what acc'ssupervisory strategy is for CBNA. She added that she was of theview that the current proposal would not resolve Citigroup'sproblems and that, unless acc found a way to stabilize thesituation at CBNA, the Corporation would find itself again beingasked to infuse additional assistance. Chairman Bair stated thatshe wanted the latter statement on the record of the Board'sconsideration of this matter, and she said that the Corporationdesires to work constructively with the acc about realisticallyrecognizing Citigroup's underlying problems as being deeper thanmerely being reflective of general market conditions. Sheemphasized that Citigroup has certain problems very specific toitself and that all of the depository institution regulators needto work together on a means of fixing them.
Director Dugan stated that ace would continue to work veryhard to address Citigroup's problems without committing to aparticular strategy at this point. He added that the acc will belooking at numerous options and will keep the Board informed ofthose options.
Staff then responded to questions from Director Reichregarding the "ring-fencing"-specific identification of assets inan asset pool-of the previously referenced $306 billion asset poolthat was the subj ect of the loss share coverage and regarding theCorporation's standard loss sharing protocol. Also in response toa question from Director Reich, Mr. Thomas indicated that thedividend restrictions under which eitigroup must seek theAgencies' consent to pay in excess of $.01 per share per quarterfor three years are contractual in nature versus the separatesupervisory basis the acc has under which it, too, can restrictthe payment of dividends with respect to Citigroup's nationalbanks.
Director Reich then asked if any changes in management areexpected or required as the result of the proposal. ChairmanBair, terming that a good question, asked Director Dugan torespond. Director Dugan responded that the agreement requires nochanges in management. Chairman Bair then asked whether acc wasevaluating the quality of management as a component of itssupervisory strategy. Director Dugan responded that acc is alwaysevaluating the quality of management, and he added that acc simplycannot dismiss management unless there are available other people
November 23, 2008 (Closed)
who are willing and capable to take over. Director Reich thenstated his symathy for the situation Director Dugan, asComptroller of the Currency, is facing, stating that there is nodoubt in his mind that this is a systemic risk situation.Director Reich then suggested that, in hindsight, there may havebeen some systemic situations prior to the current one that werenot classified as such as the failure of IndyMac Bank, F. S. B. ,Pasadena, California, on July 11, 2008, which pointed to the nextweakest institution, Washington Mutual Bank, Seattle, Washington,which failed on September 2S, 2008, which, in turn, pointed to theinsured bank and thrift affiliates of Wachovia Corporation,Charlotte, North Carolina, which generated the Corporation'sfirst systemic risk finding on September 29, 2008, and whichfinally pointed to the Citigroup situation. Director Reichwondered which notable institution would be next. He expressedhis hope that the Federal bank regulators and Treasury wouldlook at future such situations in a balanced manner and avoid"selective creativity" in determining what constitutes systemicrisk and what does not and what is possible for the governmentto do and what is not. He stated that there has been a highdegree of pressure exerted in certain situations and not inothers, making him concerned about parity.
Vice Chairman Gruenberg then thanked the Corporation'sstaff, many of whom had been at work the entire weekend inconnection with this matter as well as the staff of otheragencies for their extraordinary efforts. Chairman Bairconcurred with Vice Chairman Gruenberg's statement and notedthat many staff still had a long night before them working onexecuting the necessary agreements and making announcements tothe media.
Then, in accordance with the recommendation of staff and onmotion of Vice Chairman Gruenberg, seconded by Director Curry,concurred in by Director Dugan, Director Reich, and ChairmanBair, the Board adopted the following resolution:
(1) finding that the instability of the insured bank andthrift affiliates of Citigroup ("Banks") would haveserious adverse effects on economic conditions orfinancial stability and would create systemic risk tothe credit markets;
(2) finding that severe financial conditions exist whichthreaten the stability of a significant number ofinsured depository institutions or of insureddepository institutions possessing significant
November 23, 2008 (Closed)
financial resources and the Banks are insureddepository institutions under such threat ofinstability and that the Board takes this action inorder to mitigate the serious adverse effects, whichwill lessen the risk to the insurance fund, andsystemic risks, posed by the Banks, and that theproposal will be the least costly of all availablemethods;
(3) finding that the proposal which involves the provisionof assistance under section 13 (c) (2) of the FDI Act,12 U.S.C. § 1823 (C) (2), in the form of guaranteesagainst loss to, or contributions to, the Banks, willmitigate the serious adverse effects on economicconditions or financial instability that would becaused by the Banks' continued seriously weakenedcondition;
(4) finding that the conditions for receiving directfinancial assistance before the appointment of areceiver under section 13 (c) (8) (A) (i) and (ii) of theFDI Act have been satisfied;
(5) authorizing the Chairman of the Board, or herdesignee, to provide the written recommendation to theSecretary of the Treasury specified under section13 (C) (4) (G) (i) of the FDI Act, 12 U.S.C. §1823 (C) (4) (G) (i); and
(6) authorizing the Director, Division of Resolutions andReceiverships, or his designee, and all otherCorporation staff to take all appropriate action toimplement the provision of assistance authorizedhereunder, including but not limited to: creditsupport in the form of loan guarantees, and losssharing, and to take any other action necessary andappropriate in connection with this matter:
WHEREAS, staff has presented information to theBoard of Directors ("Board") of the Federal DepositInsurance Corporation ("FDIC" or "Corporation")indicating that the recent unprecedented disruption incredit markets and the resultant effects on theabilities of banks to fund themselves and tointermediate credit place the United States in dangerof suffering adverse economic conditions and financialinstability; and
November 23, 2008 (Closed)
WHEREAS, these conditions threaten the stabilityof a significant number of insured depositoryinstitutions, thereby increasing the potential forlosses to the Deposit Insurance Fund in theresolutions of such insured depository institutions;and
WHERES, staff has advised the Board of the FDICthat Citibank, National Association, Las Vegas,Nevada, Citibank (South Dakota), N.A., Sioux Falls,South Dakota, Citicorp Trust Bank, fsb, Wilmington,Delaware, Citibank (Banamex USA), Century City,California, Department Stores National Bank, SiouxFalls, South Dakota ("Banks"), and their affiliatesare in seriously weakened condition; and
WHEREAS, staff has advised that severe financialconditions exist which threaten the stability of theBanks which are insured depository institutionspossessing significant financial resources; and
WHEREAS, a proposal for the stabilization of theBanks and their affiliates without the appointment ofthe FDIC as receiver has been developed inconsultation with the Board of Governors of theFederal Reserve System ("Federal Reserve Board") andthe Secretary of the Treasury (collectively the"Agencies"), which involves the Agencies provision ofguarantees against loss on certain residential assetsfor 10 years and certain other assets for a period of5 years; and
WHEREAS, Citigroup Inc. ("Citigroup") will take afirst loss position equal to $37 billion; and
WHEREAS, for losses above $37 billion, there is aloss sharing agreement where losses are shared 10percent by Citigroup and 90 percent by the Agencieswith Treasury taking a second loss position up to $5billion, the Corporation taking the third lossposition up to $10 billion, and the Federal ReserveBoard having agreed to take the remaining risk basedon nonrecourse lending on the pool of assets("Proposal"); and
November 23, 2008 (Closed)
WHEREAS, the Corporation is receiving $3 billionin preferred stock as compensation for its taking the$10 billion third loss position; and
WHEREAS, the Proposal is subject to prudentialregulatory oversight and executive compensationrestrictions, with the guarantees having a limitedduration, and staff believes that the Proposal willavoid or mitigate the serious adverse effects oneconomic conditions or financial stability in the mostcost effective method; and
WHERES, the FDIC, the Office of the Comptrollerof the Currency, and the Office of Thrift Supervisionhave determined that the Banks meet the conditionsunder section 13 (c) (8) (A) (i) and (ii) of the FederalDeposit Insurance Act ("FDI Act") for receiving directfinancial assistance before the appointment of areceiver; and
WHEREAS, staff has recommended that the FDICBoard make a systemic risk recommendation supportingaction by the FDIC; and
WHEREAS, the Corporation has been advised thatthe Federal Reserve Board is expected to make asimilar recommendation and that the Secretary of theTreasury, after consultation with the President, isexpected to make the systemic risk determination inthis situation.
NOW, THEREFORE, BE IT RESOLVED, that the Boardfinds that the instability of the Banks would haveserious adverse effects on economic conditions orfinancial stability and would create systemic risk tothe credit markets.
BE IT FURTHER RESOLVED, that severe financialconditions exist which threaten the stability of asignificant number of insured depository institutionsor of insured depository institutions possessingsignificant financial resources and the Banks areinsured depository institutions under such threat ofinstability and that the Board takes this action inorder to mitigate the serious adverse effects, whichwill lessen the risk to the insurance fund, andsystemic risks, posed by the Banks, and that the
November 23, 2008 (Closed)
56631proposal will be the least costly of all availablemethods.
BE IT FURTHER RESOLVED, that the Board finds thatthe Proposal which involves the provision ofassistance under section 13 (c) (2) of the FDI Act, 12U. S. C. § 1823 (C) (2), in the form of guarantees againstloss to, or contributions to, the Banks, will mitigatethe serious adverse effects on economic conditions orfinancial instability that would be caused by theBanks' continued seriously weakened condition.
BE IT FURTHER RESOLVED, that the Board finds thatthe conditions for receiving direct financialassistance before the appointment of a receiver undersection 13 (c) (8) (A) (i) and (ii) of the FDI Act havebeen satisfied.
BE IT FURTHER RESOLVED, that the Board herebyauthorizes the Chairman of the Board, or her designee,to provide the written recommendation to the Secretaryof the Treasury specified under section 13 (C) (4) (G) (i)of the FDI Act, 12 U.S.C. § 1823 (C) (4) (G) (i).
BE IT FURTHER RESOLVED, that the Board herebyauthorizes the Director , Division of Resolutions andReceiverships, or his designee, and all other FDICstaff to take all appropriate action to implement theprovision of assistance authorized hereunder,including but not limited to: credit support in theform of loan guarantees, and loss sharing, and to takeany other action necessary and appropriate inconnection with this matter.
(EXECUTIVE SECRETARY'S NOTE: On Sunday, November 23, 2008, theUnited States government entered into an agreement withCitigroup Inc., to provide a package of guarantees, liquidityaccess, and capital, whereby, as part of the agreement, theDepartment of the Treasury and the Corporation will provideprotection against the possibility of unusually large losses onan asset pool of approximately $306 billion of loans andsecurities backed by residential and commercial real estate andother such assets, which will remain on Citigroup's balancesheet. As a fee for that arrangement, Citigroup will issuepreferred shares to the Treasury and the Corporation. Inaddition, Citigroup will comply with enhanced executive
November 23, 2008 (Closed)
compensation restrictions and implement the Corporation'smortgage modification program.)
Documents and materials relevant to the Board'sconsideration of the foregoing are marked an exhibit foridentification, are filed in the jacket of this meeting, and, byreference, are made a part of these minutes and the permanentfiles of the Board of Directors.
There being no further business, the meeting was adj ourned.
¿d .Executive Secretary
November 23, 2008 (Closed)