Late Sunday night, federal regulators announced they approved a plan to try to stabilize Citigroup.

The plan involves the government investing $20 billion in the company and backing about $306 billion in loans and securities.

This emergency plan comes after the massive U.S. bank lost half of its value in the stock market last week.

Last year at this time, Citigroup was trading at about $30 a share; on Friday they closed at $3.77 a share.

Citigroup executives have repeatedly publicly said that the bank is “sound”; however, investors worry that it needs more capital.

What the Government is Doing:

--Government regulators will back $306 billion of mostly residential and commercial real estate loans and other assets, which will stay on Citigroup's balance sheet. Citigroup will also have to take the losses on the first $29 billion of that portfolio.

--Remaining losses will be split between the government and the bank. The bank will absorb 10 percent and the government will absorb 90 percent. The Treasury Department will use the bailout fund to assume up to $5 billion of losses and the F.D.I.C. will bear the next $10 billion in losses, if needed. After that, the Federal Reserve will guarantee possible additional losses.

--The government is buying $20 billion of preferred stock in the bank. Those shares will pay an 8 percent dividend, which will slightly cut down the value of investor’s shares

Citibank’s plan:

--It will give government regulators $7 billion of preferred stock.

--It will stop dividend payments for the next three years.

--It will establish certain executive compensation restrictions, which the feds will review.

--It will put in place F.D.I.C.’s loan modification plan.

Can Bank Benefit From Bailout?

This is the government’s third plan in three months to stave off a greater economic crisis.

Investors regained confidence after previous bailouts, but many are staying weary after seeing more and more financial institutions crack.

With more than $2 trillion in assets and such a wide international presence, Citigroup is seen as one of those institutions that are just too big to fail.

---Stay tuned to The Bankruptcy Blog for more economic news as it developes.

Tags: Citigroup, economic crisis