Citigroup is selling a $7.5 billion stake to the investment arm of the Abu Dhabi government, giving the largest US bank fresh capital as it wrestles with the subprime mortgage crisis and the resignation of its chief executive.
The investment will boost Citi’s capital levels, which have been depleted by writedowns of assets including mortgage bonds and credit card loans. An analyst wrote recently that Citi may have to cut its dividend to build the $30 billion of additional capital that she saw as necessary for the bank.
The purchase of up to 4.9% will make Abu Dhabi Investment Authority, the world’s largest sovereign wealth fund, Citi’s largest shareholder.
“This investment, from one of the world’s leading and most sophisticated equity investors, provides further capital to allow Citi to pursue attractive opportunities to grow its business,” Win Bischoff, Citigroup’s acting chief executive, said in a statement on Monday.
The sale may signal that the freefall in US financial stocks is close to ending, analysts said.
“Citi is big, it’s widely followed, and when people see confidence in it, it should mean something,” said Bo Brownstein, an analyst at Cambiar Investors in Denver, Colorado.
The investment also signals the increasing financial might of oil producing countries, which have benefited from a fivefold increase in the price of petroleum over the last five years.
Dubai International Capital (DIC), a private equity firm owned by the ruler of Dubai, said on Monday it made a “substantial investment” in Sony Corporation. It had said in July it was ready to spend up to $1.5 billion in Japan.
A separate Abu Dhabi entity earlier this month bought a stake in US-based chip maker Advanced Micro Devices (AMD).
Abu Dhabi Investment Authority manages the surplus revenues of the government of Abu Dhabi, the world’s sixth-largest oil exporter. Standard Chartered estimated in September its assets were worth $650 billion.
State-run funds are keen for stakes in global banks, which can benefit from the development of emerging markets, a person familiar with the funds said.
Citi operates in over 100 countries and has boosted its investments in emerging markets over the last 12 months, including buying a Turkish brokerage house and a commercial and retail bank based in El Salvador.
Acquisitions in general have taken up some $25 billion of Citi capital over the last year, according to CIBC World Markets analyst Meredith Whitney.
Combined with writedowns of some $6.5 billion in the third quarter and expected future writedowns, Citi may have to cut its dividend to replenish its capital, Whitney wrote on October 31.
Citi said on November 4 it does not plan to cut its dividend. On the same day, it said that it might take $8-$11 billion of additional writedowns in the fourth quarter, and that its chief executive Charles Prince was resigning.
Before the Abu Dhabi announcement, Citi shares ended down 6% at $29.80 in New York, their lowest close in more than five years.
Just a regular shareholder
Under terms of the agreement, the Abu Dhabi Investment Authority will have no special rights of ownership or control and no role in the management or governance of Citi, including no right to designate a member of the board of directors.
The Abu Dhabi Investment Authority is buying mandatory convertible securities that can be converted into Citi stock at prices ranging from $31.83 to $37.24 per share. The number of shares the investment group receives will adjust based on Citi’s share price, with a higher share price giving the investor fewer shares.
The securities will also pay a fixed coupon of 11% per year, payable quarterly.
The investment it expected to close within days, Citi said. (Reuters)
Follow us on
