The US government rode to the rescue of Citigroup, entering an agreement to guarantee up to $306bn in problematic assets and inject $20bn in capital to restore confidence in a bank that defines the term “too big to fail”.

The 11th hour transaction, announced just before midnight on Sunday in the US, calls for Citi to absorb the first $29bn in losses it sustains from its portfolio of risky assets – from residential mortgages to commercial real estate and leveraged loans, collateralised debt obligations and auction rate securities. Federal government entities will stand behind 90 per cent of the remaining losses, which could amount to $249bn.