Citigroup approves $6B in new lending initiatives
The New York-based bank claimed it has licensed $50.8 bill in lending programs tied to receiving cash as an element of the Uneasy Asset Relief Program, or TARP. The program was launched last autumn by the Treasury Department to help stabilise the lending markets at the top of the credit crunch. A part of that cash was latterly converted into a 34% possession stake for the govt. Among the money authorized for lending, $15.1 bn. has been utilized, the banking giant declared in its 3rd quarterly update on how it is expanding lending efforts after receiving central authority money.
2 new programs, worth up to $6 bln, were authorized by Citi in quarter two. Citigroup will supply up to $4 bn. in borough letters of credit and another $2 bln for mortgage originators. The lending initiative for municipalities builds on a $5 bn. program Citi licensed in Q1 that provides loans to civil clients to immediately fund capital projects , for example building new infrastructure. The letters of credit should be available to local central authorities, community agencies, medicare groups and other public finance clients for at least 3 years.
The $2 bln for mortgage originators should be available as loans known as warehouse credit lines. Mortgage banks will tap the credit lines to originate new mortgages. When the new mortgages are then sold in the secondary markets, the cash is paid back on the line of credit. It then becomes available again to scribble new loans. A majority of Citigroup’s lending initiatives since receiving TARP funds have been aimed toward the mortgage market, which started to collapse in 2007 and helped push the country into recession. Mounting loan losses on failed mortgages and the declining price of investments tied to the real estate loans have been the first drivers of losses at banks and other financial establishments. Over fifty percent the money Citi has employed so far has been used to buy bonds backed by mortgages in the secondary market. Banks like Citigroup don’t lend the TARP cash immediately to borrowers.
Instead, the banks keep the additional capital on their books, which lets them borrow extra cash from funding sources. Then, they lend that borrowed cash to others. A bank earns money by borrowing cheaply for the short term and lending at raised rates for the long term ; if a bank has no capital, other establishments and financiers will not lend to it. Since Citigroup received a preliminary $25 billion in October, it has made $330 bln in new credit available to US consumers, small business and communities, including $129.7 bn. in quarter 2.
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