Citigroup to sell $7.5 billion stake to Abu Dhabi
Citigroup Inc (C.N: Quote, Profile, Research) is selling up to 4.9 percent of itself for $7.5 billion to the Gulf Arab emirate of Abu Dhabi, giving the largest U.S. bank fresh capital as it wrestles with the subprime mortgage crisis and the resignation of its chief executive.
The capital injection will shore up Citi's balance sheet, which has been hurt by some $6.8 billion of writedowns and losses in the third quarter, and the potential for another $11 billion in the fourth quarter.
Citi is paying a high price for the capital injection by selling mandatory convertible securities to Abu Dhabi which pay a fixed coupon of 11 percent. That is above the average yield on U.S. junk bonds, which is 9.4 percent according to Merrill Lynch data.
Analysts at Royal Bank of Scotland said in a note that Citigroup was paying a "high price," but that the convertible notes would help boost the bank's core capital.
The sale to the $650 billion Abu Dhabi Investment Authority, the world's largest sovereign wealth fund, may also signal the freefall in U.S 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 covering financial stocks at Cambiar Investors in Denver, Colorado.
The dollar rose against the yen on the news, and Japanese bank stocks also rallied. In Tokyo trading, Citi shares (8710.T: Quote, Profile, Research) fell 4.2 percent for the day, but had been trading even lower before news of the Abu Dhabi deal.
Family ruled Abu Dhabi -- whose citizens number no more than 400,000 -- will be Citi's largest shareholder. The investment reflects the increasing financial might of oil-producing countries, which have benefited from a five-fold increase in the price of crude oil during the last six years.
Devil. Selling. We are. Our souls. To the.
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