INSTANT VIEW: Citigroup gets $306 billion rescue from government

SINGAPORE (Reuters) - The U.S. government agreed to a $306 billion rescue plan for Citigroup Inc, under which it will shoulder some losses from toxic debt in the latest attempt to bolster a financial services industry in turmoil.

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KEY POINTS:

- Treasury says it and the Federal Deposit Insurance Corp. will provide protection against losses in a pool of about $306-billion worth of loans and securities on Citigroup's balance sheet.

- Treasury to invest $20 bln in Citigroup exchange for preferred stocks

- Treasury says Federal Reserve ready to backstop any additional risk in asset pool through an offer of a non-recourse loan.

COMMENTS:

WINSTON HERRERA, CREDIT ANALYST WITH BNP PARIBAS, HONG KONG:

"It will definitely be positive for sentiment in terms of credit and other asset classes. A lot of the credit indices are going to tighten, especially when Europe opens.

"This rally started last Friday, we still see a few days for this to go on given the announcements at APEC on economic stimulus. Governments are raising the ante and next month the Fed is expected to cut rates. We will probably see a week of tightening. It's not going to be a one day rally.

RORY ROBERTSON, INTEREST RATE STRATEGIST, MACQUARIE IN SYDNEY:

"The move will help the markets not implode today. It's another one of a series of moves where the U.S. government and the Fed do whatever they can from preventing the financial system to fall over.

"It's all good stuff but the fact that the Fed has to bail out one of the biggest banks in the world is not exactly a vote of confidence. It's another example of institutions getting caught with too many bad loans in their books."

ATSI SHETH, ECONOMIST, RELIANCE CAPITAL, MUMBAI:

"Citigroup is globally a very important financial institution. Anything that keeps sentiment from falling off the cliff on that particular institution should be interpreted as marginally good news. But it is still too early to tell how things will actually shape up."

DARIUSZ KOWALCZYK, CHIEF INVESTMENT STRATEGIST, CFC SEYMOUR, HONG KONG:

"We expect the U.S. bailout of Citigroup as well as Obama's promise of a major stimulus plan -- with key Democrats suggesting numbers between $500 and $700 billion, much bigger than expected -- to allow stock markets to gain across the globe.

"In particular, U.S. equity markets have likely already seen their bottom. The Citi rescue will reduce risk in the market, and the stimulus package will help U.S. recession end sooner than many are expecting. Commodities may also gain, while Treasuries should suffer. The yen and the dollar are likely to decline."

DAVID FORRESTER, FX STRATEGIST, BARCLAYS CAPITAL, SINGAPORE:

"The bailout of Citi is good news in the short term because the market was priced pretty aggressively for more trouble. You already see that S&P futures are up substantially on the back of the news, more than 1 percent.

"Risk appetite is still fragile, and there are a couple of reasons. Even with the Citigroup bailout, in the near term it reduces systemic risk, but it does raise questions about what it means for the industry longer term. Increased government intervention in the market is the best way to describe it. You have to look at other pieces of news, the UK stimulus package out later tonight. A lot of details have been leaked, but we need to know the size of the package. Disappointment on the size could send risk premiums spiking again. And more important for sterling is the financing of it.

"What also makes markets nervous is that we still have the automakers in the background. So good news, but it's tenuous. As sentiment always is, it's fragile."

SUE TRINH, CURRENCY STRATEGIST AT RBC CAPITAL MARKETS, SYDNEY:

"Absent any domestic data and with Japanese markets closed, price action in Asia was entirely focused on developments on the Citigroup front. Officials from Citigroup, the Fed and Treasury have been meeting over the weekend in hopes of coming up with a rescue plan.

"The news prompted a fresh bout of risk appetite, taking S&P futures up 1.9 percent so far.

"Clearly, the market focus today will be on the release of a concrete rescue plan for the bank, details of which remain fluid; reports so far have noted that any infusion plan is provisional and subject to change."

TONY MORRISS, SENIOR CURRENCY STRATEGIST, ANZ BANK, SYDNEY:

"We're still trying to work out the specifics but it looks enormous in size and scope. The reaction so far has been relatively muted because maybe there are as many questions about this as there are answers in terms of saving and stabilizing Citigroup.

"Does this mean support for other financial institutions will be this big? Does this mean there will be more problems around calculation of so-called toxic assets? It's too early to say. It's kind of positive if you look at the S&P futures but it's an overall muted response."

MARK PERVAN, SENIOR STRATEGIST AT AUSTRALIA & NEW ZEALAND BANK, MELBOURNE:

"This is definitely a positive development. It may create a false rally in markets but the optimism probably won't last too long, since given the recent economic developments, it will need days or even weeks of positive news to boost oil prices at the fundamental level.

"At the end of the day, the economic backdrop will need to significantly improve and the Citibank deal with the U.S. government may be one of the first steps toward that."

MARKE REACTION

-- S&P futures jumped on the announcement and Treasury futures held near their lows of the day.

-- Asian stock markets pared some losses and the yen slipped as higher-yielding currencies recovered ground.

- Citigroup shares plunged 20 percent to $3.77 on Friday on heightening concerns about the bank's loan exposure amid a recession hurting many economies globally.

BACKGROUND:

- Citigroup, the second-largest U.S. bank by assets, is facing a crisis of confidence as investors question the bank's survival prospects. Its shares tumbled 60 percent last week.

- The company has been reeling on concerns that mounting losses from credit cards, mortgages and toxic debt could overwhelm its efforts to slash costs and increase deposits.

- The company's market value fell to $20.5 billion on Friday, which is less than the $25 billion taxpayer-funded injection it received from the federal government