Citi"s new shareholders by Claudia Sonea

Late on Monday the officials of US largest bank announced that the losses from mortgages and other investments will be balanced by the new investment made by Abu Dhabi Investment Authority, a sovereign investment fund of the Gulf Arab state, which has benefited from this year's surge in oil prices. The $7.5 billion investment would mean 4.9 percent of Citigroup Inc.'s equity. Despite the statement of Citigroup saying the fund will not be able to name any board members to the bank and is merely a passive one, on the long run, in a few years Authority Investment will take over the bank. If usually the banking offers dividend yield of 7.3 percent, the fact that it will have to pay an 11 percent annual yield for the equity units sold to the sovereign investment fund, is found to be rather high. Furthermore, between March 15, 2010, and Sept. 15, 2011 the percent or the dividends will be transformed in Citigroup common shares at a price of up to $37.24 a share. The Investment Authority's managing director, Sheikh Ahmed Bin Zayed Al Nahayan, stated that their actions are a mere prove of their trust in the bank's power and value and it will be considered as a Tier 1 capital ( for regulatory purposes a company's core cash, which includes stock and disclosed reserves). Although, John McDonald, a Banc of America Securities analyst revealed the fact that the investment is not a permanent solution and it will not fix the bank's debt troubles Citigroup shares rose 98 cents, or 3.3 percent to $30.78 at the open of trading Tuesday, proving that investors are more confident in the bank's future. Since the beginning of this year, Citigroup lost about 45 percent of their value, wiping away $124 billion in market capitalization. The losses (only in the third quarter about $6.5 billion) were followed by the resign of Charles Prince as Citigroup's chairman and chief executive November 4. Moreover, on Monday a new wave of staff lay off was announced after the bank pared its 320,000 workforce by 17,000 positions earlier this year. Abu Dhabi Investment Authority controls hundreds of billions of dollars and like most of the sovereign funds, it has been building up overseas investments recently, much of it on the back of oil prices that have risen more than 60 percent this year, bringing record cash flow to the region. It's a pattern adopted by China and Russia. However, Citibank is in a desperate situation and according to Win Bischoff, acting chief executive, the investment has a perfect timing. Don't go away…more to come.

related story: http://news.yahoo.com/s/ap/20071127/ap_on_bi_ge/citigroup_abu_dhabi;_ylt=AsZffmprEiSHOwh9sGmiClCs0NUE

by Claudia Sonea for PocketNews (http://pocketnews.tv)

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