Citigroup Sells a 4.9% Stake for $7.5 Billion to Fund in Abu Dhabi
Citigroup announced last night that it was selling a $7.5 billion stake to a Middle Eastern sovereign fund in the latest bid to shore up its precariously low capital base.
The fund, the Abu Dhabi Investment Authority, has agreed to buy a 4.9 percent equity stake in a complex transaction that has been approved by federal regulators. It will have no role in the management or governance of Citigroup, nor any presence on Citigroup’s board.
Abu Dhabi’s 4.9 percent stake means that nearly 10 percent of Citigroup will be controlled by Middle Eastern investors. Prince Walid bin Talal of Saudi Arabia already owns a roughly 5 percent stake after bailing out the company in the early 1990s.
“This investment reflects our confidence in Citi’s potential to build shareholder value,” said A.D.I.A.’s managing director, Sheikh Ahmed bin Zayed al-Nahyan.
The investment from Abu Dhabi underscores Citigroup’s precarious capital position, and also highlights the growing petrodollar wealth of Mideast countries, which are buying up assets and taking stakes in numerous American companies.
In addition to bolstering Citigroup’s capital base, which has dwindled to unusually low levels after a spate of acquisitions and recent credit market turmoil, the move should ease pressure on Citigroup’s dividend.
The company’s management has committed to maintaining its dividend while significantly bolstering its capital levels by the end of the second quarter of 2008.
Citigroup is expected to raise another $4 billion that will be put toward its purchase of a stake in Nikko Cordial of Japan, on top of hundreds of millions that generated by selling portions of its businesses.
“What we are trying to do is show there is a very clear pathway to meet” the company’s capital goals, said a senior Citigroup official involved with the plan. “This is obviously a meaningful step for us.”
A.D.I.A. will receive convertible stock in Citigroup, with an 11 percent yield, that must be converted into common stock at a price of $31.83 to $37.24 a share from March 2010 to September 2011. The investment is expected to close within the next several days.
Citigroup officials said they had briefed the credit rating agencies and won approval from its main regulator, the Federal Reserve Board in New York. It is unclear if other federal regulators were briefed on the agreement, but executives said they did not expect the deal to be derailed on regulatory or political grounds.
A spokesman for Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said in an e-mail message that the congressman was “generally supportive that Citi was able to raise capital and reassure investors.”
Senator Charles E. Schumer, chairman of the Joint Economic Committee and a senior member of the Senate Banking and Finance Committees, said in a statement that “this transaction will bolster Citigroup’s capital and competitiveness, and thereby help preserve New York’s status as the world’s financial center.”
Citigroup’s shares have dropped sharply since October, when billions of dollars in write-downs first started to mount. Citigroup’s shares closed down more than 3 percent yesterday, at $30.70, and continued to drop in after-hours trading. Its 52-week high was $57, set in late December 2006.
Since October, Citigroup has announced another $8 billion to $11 billion charge related to bad subprime mortgage investments, which might wipe out its fourth-quarter profit. And some analysts project that an additional $4 billion charge could be in the offing.
The company’s struggles raise serious questions about its diversified business model and risk- management practices during one of the most turbulent times in its history. There have been bad trading bets at its investment bank, souring mortgage and credit card loans in its consumer division, and bloated costs and a shortage of management talent across the company.
Since Charles O. Prince III resigned as chairman and chief executive last month, Citigroup’s board has been looking for a new leader. Analysts and investors have renewed their calls to dismantle the company, pointing to its recent woes as evidence that it is too big to manage.
New questions — from troubled off-balance- sheet affiliates to its ability to maintain its current dividend — seem to sprout up each week.
Yesterday, Wall Street was speculating that there could be thousands of additional layoffs soon, just seven months after the company announced 17,000 job cuts as part a major revamping effort.
The company, however, played down the reports, calling any layoffs part of a planning process to “be more efficient and cost-effective” in light of economic realities. It declined to provide any specific figures. (
The fund, the Abu Dhabi Investment Authority, has agreed to buy a 4.9 percent equity stake in a complex transaction that has been approved by federal regulators. It will have no role in the management or governance of Citigroup, nor any presence on Citigroup’s board.
Abu Dhabi’s 4.9 percent stake means that nearly 10 percent of Citigroup will be controlled by Middle Eastern investors. Prince Walid bin Talal of Saudi Arabia already owns a roughly 5 percent stake after bailing out the company in the early 1990s.
“This investment reflects our confidence in Citi’s potential to build shareholder value,” said A.D.I.A.’s managing director, Sheikh Ahmed bin Zayed al-Nahyan.
The investment from Abu Dhabi underscores Citigroup’s precarious capital position, and also highlights the growing petrodollar wealth of Mideast countries, which are buying up assets and taking stakes in numerous American companies.
In addition to bolstering Citigroup’s capital base, which has dwindled to unusually low levels after a spate of acquisitions and recent credit market turmoil, the move should ease pressure on Citigroup’s dividend.
The company’s management has committed to maintaining its dividend while significantly bolstering its capital levels by the end of the second quarter of 2008.
Citigroup is expected to raise another $4 billion that will be put toward its purchase of a stake in Nikko Cordial of Japan, on top of hundreds of millions that generated by selling portions of its businesses.
“What we are trying to do is show there is a very clear pathway to meet” the company’s capital goals, said a senior Citigroup official involved with the plan. “This is obviously a meaningful step for us.”
A.D.I.A. will receive convertible stock in Citigroup, with an 11 percent yield, that must be converted into common stock at a price of $31.83 to $37.24 a share from March 2010 to September 2011. The investment is expected to close within the next several days.
Citigroup officials said they had briefed the credit rating agencies and won approval from its main regulator, the Federal Reserve Board in New York. It is unclear if other federal regulators were briefed on the agreement, but executives said they did not expect the deal to be derailed on regulatory or political grounds.
A spokesman for Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said in an e-mail message that the congressman was “generally supportive that Citi was able to raise capital and reassure investors.”
Senator Charles E. Schumer, chairman of the Joint Economic Committee and a senior member of the Senate Banking and Finance Committees, said in a statement that “this transaction will bolster Citigroup’s capital and competitiveness, and thereby help preserve New York’s status as the world’s financial center.”
Citigroup’s shares have dropped sharply since October, when billions of dollars in write-downs first started to mount. Citigroup’s shares closed down more than 3 percent yesterday, at $30.70, and continued to drop in after-hours trading. Its 52-week high was $57, set in late December 2006.
Since October, Citigroup has announced another $8 billion to $11 billion charge related to bad subprime mortgage investments, which might wipe out its fourth-quarter profit. And some analysts project that an additional $4 billion charge could be in the offing.
The company’s struggles raise serious questions about its diversified business model and risk- management practices during one of the most turbulent times in its history. There have been bad trading bets at its investment bank, souring mortgage and credit card loans in its consumer division, and bloated costs and a shortage of management talent across the company.
Since Charles O. Prince III resigned as chairman and chief executive last month, Citigroup’s board has been looking for a new leader. Analysts and investors have renewed their calls to dismantle the company, pointing to its recent woes as evidence that it is too big to manage.
New questions — from troubled off-balance- sheet affiliates to its ability to maintain its current dividend — seem to sprout up each week.
Yesterday, Wall Street was speculating that there could be thousands of additional layoffs soon, just seven months after the company announced 17,000 job cuts as part a major revamping effort.
The company, however, played down the reports, calling any layoffs part of a planning process to “be more efficient and cost-effective” in light of economic realities. It declined to provide any specific figures. (
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