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Abu Dhabi paid $7.5 billion for a stake in Citigroup, which will amount to 4.9 percent of the company in 2011. (M. Spencer Green/Associated Press) |
NEW YORK - Abu Dhabi's $7.5 billion stake in Citigroup Inc. is more than just a bandage for the bank, but it's far from a cure.
Citi is struggling with a stock that is bouncing off of a five-year low, billions in credit losses, and a lack of leadership at one of the most critical times in its history.
Whoever the board chooses as chief executive has a tough task ahead. The 11 percent yield Citi is paying the Gulf state for its investment shows that raising cash comes at a price, and the lukewarm reaction by shareholders illustrates that no single strategy is going to please everyone.
At this point, even without a permanent leader at its helm, the bank is looking into more ways to draw capital.
"We are actively working on other sources, like sales of nonstrategic assets," a senior Citigroup executive said. Under the ground rules of the interview, Citigroup requested the official not be named.
The executive gave the example of the sale during the third quarter of a 7 percent stake in one of its businesses in Brazil. "There are a number of things like that that we are evaluating constantly," he said.
And it's possible that another investor such as Abu Dhabi could come along.
"We had many inquiries from different potential investors," the senior executive said. But the executive would not say whether any of those deals are still in the works, and said the type of security Abu Dhabi bought has a limit that Citi is nearing.
In general, Wall Street was relieved to hear about the Abu Dhabi Investment Company's infusion, which will boost Citi's ratio of cash to debt and, in turn, make Citi stronger financially. Once the equity units Abu Dhabi bought are converted into stock in 2010 and 2011, Abu Dhabi will hold a 4.9 percent stake in Citi. Until those units get converted, Citi will pay Abu Dhabi a yield, or essentially an interest rate, of 11 percent.
© Copyright 2007 Globe Newspaper Company.
