The U.S. government has finally decided to bailout Citigroup Inc (Citi & Citibank), agreeing to ownership of most of the potential losses on $306 billion of high risk assets and inject $20 billion of new capital, in its biggest rescue of a bank yet. Expert believe if CitiGroup bailout didn’t happen they had to file for bankruptcy this week. This could have been the biggest ever banking failure in the world and might have triggered the biggest recession of all time.

The government’s $20 billion of new capital comes on top of $25 billion it had put into the second-largest U.S. bank by assets. The government in return receive preferred shares with an 8 percent dividend in return.

Citigroup received the latest infusion after its shares plunged 60 percent last week to $3.77. It is great value and the stock is all set to jump after the announcement that they will be rescued by the US Government.

Due to the bailout, Citigroup’s dividend will be completely wiped out. Investors will not receive a single cent now. The bank cannot pay out more than 1 cent per share per quarter over the next three years without government consent. The quarterly dividend is now 16 cents.

Citibank will now try to modify troubled mortgages in the $306 billion portfolio as the government tries to keep homeowners out of foreclosure.

Shrikant Pandit, CEO of Citigroup quoted post-bail out that Citibank is all set to reduce Citigroup’s workforce to 300,000 by early next year from 375,000 at the end of 2007.

Citigroup’s market value on Friday was just $20.5 billion, down from more than $270 billion two years ago – and even below the $25 billion initial capital injection.