yup, this deal does not make sense. Citi have been screwed on this deal. The Fed guaranteed JPM would not bear any loss from taking over Bear Stearns. Citi should have walked away without the same guarantee.
Citi took the debt because they expect to be first in line for a piece of the $700B, and will hand a bunch of the liability over to the government
The FDIC also has entered into a loss-sharing arrangement on a pre-identified pool of loans under which Citigroup will absorb up to $42 billion of losses on a $312 billion pool of loans, with the FDIC covering anything beyond that. Citigroup has granted the FDIC $12 billion in preferred stock and warrants to compensate the FDIC for bearing the risk.