Abu Dhabi Invests $7.5 Billion in Citigroup By ROBIN SIDEL November 26, 2007 9:54 p.m.
Citigroup Inc., seeking to restore investor confidence amid massive losses due in credit markets and a lack of permanent leadership, is receiving a $7.5 billion cash infusion from the investment arm of the Abu Dhabi government, according to people familiar with the situation.
The investment by the Abu Dhabi Investment Authority will help rebuild Citigroup's capital levels, which have been eroded by a credit crunch that began in August. Citigroup Chief Executive Charles Prince resigned earlier this month after the bank, which had already written off billions of dollars, was facing as much as $11 billion more in losses.
As a result of the deal, the investment authority known as ADIA will become one of Citigroup's largest shareholders, with a stake of less than 5%, said the people familiar with the matter. The stake will exceed that of Saudi Prince Alwaleed bin Talal, long known as one of Citigroup's largest shareholders, these people said.
The investment underscores the growing role that Middle Eastern investors are taking outside their home turf. Separately Monday, an investment company owned by Dubai's ruler, Sheikh Mohammed bin Rashid al-Maktoum, bought a stake in Sony Corp. ADIA, which has almost $1 trillion under management, this summer bought a small stake in Apollo Management LP.
In exchange for its investment, ADIA will receive convertible stock in Citigroup yielding 11% annually. The shares are required to be converted into common stock at a conversion price of a maximum $37.24 a share over a period of time between March 2010 and September 2011.
On Monday, shares of Citigroup fell more than 3% to $30.70 in 4 p.m. composite trading on the New York Stock Exchange.
ADIA, which is a client of Citigroup, won't have any governance rights in the bank.
Investors have increasingly expressed concerns about Citigroup's "tier 1" capital levels -- a common measure of a bank's capital adequacy -- which for the first time in years fell below its 7.5% target in the third quarter. Although the bank is still considered to be well-capitalized, investors worried that Citigroup would be forced to cut its dividend.
Citigroup officials repeatedly denied that was the case and said it was taking steps to restore the capital levels by the middle of 2008.
Citi, which is the nation's largest bank, as measured by assets, has been under intense pressure for months. Although it is seeking to reduce costs, more cutbacks are likely in coming months. The bank is at risk of more losses due to the credit-market turmoil, leading to widespread concerns that it and other financial institutions will be forced to curtail lending.
Furthermore, Citigroup's U.S. consumer business, which includes retail banking and credit cards, is trailing key rivals like Bank of America Corp. and J.P. Morgan Chase & Co.
Citigroup's board of directors is also in the midst of a high-profile search to replace Mr. Prince. Upon Mr. Prince's resignation, the board named senior advisor Robert Rubin as chairman and also appointed Sir Win Bischoff, chairman of Citi's European operations, as interim chief executive.
Investors, meanwhile, have increasingly soured on the bank's performance. Some have called for a break-up of the financial conglomerate that was formed about a decade ago.
Other financial-services companies also have sought out investors to help them through the credit-market turmoil. This summer, Bank of America took a $2 billion equity stake in Countrywide Financial Corp. after the mortgage lender got caught in a funding crisis. In that deal, Bank of America received nonvoting convertible preferred stock of Countrywide yielding 7.25% annually.
Separately, Bear Stearns Cos. Inc and Citic Securities Co., a Chinese investment bank, last month announced a deal in which each will invest about $1 billion in the other.