Citi Bailout Gives Investors Reason to Smile

Shares of Citigroup (C Quote) and other large bank holding companies bounced on Monday, as investors cheered a fresh bailout that did not wipe out holders of preferred and common stock.

Citigroup common were shares up 49.1% to $5.62 in recent trading, recouping a chunk of the stock's steep fall last week when it slid 60% to $3.77. Investors had headed into the weekend worried that another government bailout wiping out common or preferred shareholders -- like earlier rescues for Fannie Mae (FNM Quote) and Freddie Mac (FRE Quote) -- was on its way.

Instead, the Citigroup bailout jointly announced by the Treasury, Federal Reserve and Federal Deposit Insurance Corp. on Monday kept the banking giant's equity securities issues intact while bolstering capital with another $20 billion investment from the Treasury's Troubled Asset Relief Program. It also guarantees $306 billion in loans and securities on Citigroup's balance sheet. The icing on the cake was the announcement that the Fed was prepared "to backstop residual risk in the asset pool through a non-recourse loan." ...