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Citigroup to Bail Out Internal Hedge Fund

Citigroup earlier this week agreed to provide $500 million in credit to one of its troubled hedge funds, the bank disclosed in a regulatory filing late Friday.

Mark Lennihan

The Citi-managed fund, known as Falcon, was brought onto the bank's books, which will increase the bank's assets and liabilities by about $10 billion. The fund focuses on fixed income.

Citigroup recorded a $10 billion loss in the fourth quarter, and has been working to sell shares of itself and other assets to raise cash.

The bank might continue having trouble returning to financial health, though. After home mortgages drained more than $150 billion from the world's banking industry last year, many experts say commercial real estate loans and bond insurers could be the next culprits. In Citi's regulatory filing Friday, it detailed its exposure to these risky assets.

Bond Insurer Exposure

The bank had $4 billion in investments, as of Dec. 31, that were directly exposed to bond insurers, which have been struggling to maintain their superior ratings and scrambling for cash.

Citi is most exposed to the bond insurer Ambac Financial, which is in talks with regulators and a group of banks, including Citi, to come up with a way to raise its cash levels. Citi's exposure to Ambac, through trading assets and debt instruments, was nearly $3 billion as Dec. 31.

Meanwhile, Citi said it had approximately $20 billion in trading-related exposure to commercial real estate, and more than $20 billion in loans related to commercial real estate.


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