The rescue package that the US Government has agreed with Citigroup could cost the taxpayer as much as $130 billion but it will still not be enough to secure the bank's future in the longer term, experts said yesterday.

Although the Government has agreed to bear the bulk of the losses on a designated $306 billion portfolio of Citigroup's most toxic loans, mortgages and securities, the bank has a further $2,200 billion of assets that will not be covered.

The Government has purposely opted to backstop the assets it perceives to be the highest risk and these could lose up to half their value, according to Sean Egan, of the Egan Jones ratings agency. That would land the US taxpayer with a bill of about $110 billion after Citigroup meets its obligation of covering the first $29 billion of losses and 10 per cent of the rest. The Government will also inject $20 billion into the group's capital base as part of the rescue package, which could potentially increase the bill to about $130 billion.

The percentage losses on Citigroup's remaining assets will be much lower than 50 per cent but are likely to average at least 10 per cent, Mr Egan added.

This implies that Citigroup faces $220 billion of losses on its remaining portfolio of mortgages, car loans, credit card lending and other assets, meaning that the Government's pledge to inject $20 billion into the rest of the bank is not enough, Mr Egan said.

“It is definitely a step in the right direction but there will have to be additional rounds of Government assistance,” Mr Egan said.

Chris Whalen, of Institutional Risk Analytics, added: “It's a half measure. At some point the Government is going to have to take over Citigroup properly - take it apart and sell it.”

Prince Alwaleed bin Talal of Saudia Arabia, who said last week that he would increase his stake in Citigroup from just under 4 per cent to 5 per cent, disagrees with the doomsayers.

In an interview with the CNBC news channel yesterday Prince Alwaleed said he believed the $20 billion cash injection was way beyond what the bank needed.

The Prince, who endorsed the group last Wednesday in an unsuccessful attempt to halt its declining share price, reiterated that he stood behind Vikram Pandit, the chief executive, who he said was “doing the right thing” but needed more time.

He added that the blame for Citigroup's predicament lay with the previous management, and said that Sandy Weill, who headed the bank until 2003, had apologised to him for appointing Charles Prince to succeed him. Mr Prince was replaced by Mr Pandit at the end of last year.

The shareholders appear to share Prince Alwaleed's optimism and Citigroup is certainly safe in the short term. In the longer term, whether any further intervention is needed will depend largely on how much lower the financial crisis pushes Citigroup's asset valuations.

Even if Citigroup does not require further government assistance, there are plenty more financial services groups that will.

Among the larger institutions, Wall Street expects Goldman Sachs and Morgan Stanley to be next. Mr Whalen argues that neither group is big enough to survive in its current form and that both will be acquired in the short term.

He rejected speculation that Goldman Sachs would be in the market to make any acquisition, predicting instead that a Japanese institution would probably seize Goldman and that a US regional bank may buy Morgan Stanley.

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