Citi, feds working on deal

They're talking about the creation of a "bad bank" that would carry Citigroup's riskiest, most toxic assets. Pushing all that junk into a separate entity could help cleanse the company's books - and serve as a model for other troubled banks. The NYT reports that the government would shoulder losses at Citigroup if they exceeded certain levels. If the government should have to take on the bigger losses, the Times reports, it would receive some sort of stake in Citigroup. Details are quite fuzzy and the Times and WSJ are reporting this out in slightly different ways. So who knows? But the weekend meetings point to the gravity of the situation. There's a growing belief that Citi must announce a massive restructuring plan before the markets open Monday morning. Otherwise, the stock might fall even further, making any rescue plan even tougher. From the Times:

The plan under discussion is reminiscent of the one that Citigroup and the F.D.I.C. worked out in October to smooth Citigroup’s proposal to buy the Wachovia Corporation. That deal fell through, however, when Wells Fargo swept in with a higher offer. Under that plan, the Citigroup agreed to bear a certain level of Wachovia’s losses, with the F.D.I.C. absorbing the rest. In exchange, Citigroup agreed to pay the F.D.I.C. in preferred stock.