http://www.reuters.com/article/businessNew...R75124320071127

Citigroup to sell $7.5 billion stake to Abu Dhabi

Tue Nov 27, 2007 9:24am EST
By Dan Wilchins and James Cordahi

NEW YORK/DUBAI (Reuters) - Citigroup Inc 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.
...
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....

After conversion, Abu Dhabi's stake would be larger than the current holding of Saudi Prince Alwaleed bin Talal, who is one of Citi's largest shareholders.

Prince Alwaleed acquired his Citi stake in 1991 when the bank struggled with Latin American loan losses and the U.S. real estate market collapse, and his shares in the banks were worth some $6 billion earlier this month.
...
The investment group is buying mandatory convertible securities that can be converted into Citi stock in 2010 and 2011 at prices ranging from $31.83 to $37.24 per share. The number of shares it 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 percent per year, payable quarterly. That may seem steep, but after accounting for the fact that 60 percent of that coupon is tax-deductible, the coupon rate is similar to the dividend rate on Citi's shares, a person familiar with the matter said.

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The real Bush Legacy...put that in his library and smoke it.

I thought it was against Shariah Law for Muslims to accept interest on loans.

They'll just call themn "coupons"...

...it seems some are already shaking their heads...

http://online.wsj.com/article/SB1196172746...=googlenews_wsj

Wall Street Journal
FOREIGN EXCHANGE


Dollar Fades After Citi-Fueled Boost
By RIVA FROYMOVICH
November 27, 2007 11:23 a.m.

NEW YORK -- The dollar was lower against the euro and off its overnight highs against the yen after getting a boost from news that the investment arm of the Abu Dhabi government will take a $7.5 billion stake in Citigroup Inc.

That temporarily eased market fears over the impact of the credit crunch, but the calm proved fleeting in currency markets as investors turned their attention back to the U.S. economy's worrying outlook.

"(The) Citi development is simply the result of one (large) investor's judgement and does nothing to suggest that the economic outlook is any less fraught with risk, and we expect that its effect will prove fleeting," said Stephen Malyon, currency strategist at Scotia Capital in Toronto.