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Abu Dhabi to Bolster Citigroup
With $7.5 Billion Capital Infusion
Government Investment Arm
To Become a Top Holder,
With Up to a 4.9% Stake
By ROBIN SIDEL
November 27, 2007; Page A3

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 capital infusion from the investment arm of the Abu Dhabi government.

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 the summer. Citigroup Chief Executive Officer and Chairman Charles Prince resigned earlier this month after the bank, which had already written off billions of dollars, said it was facing as much as $11 billion more in losses.

Citigroup announced the transaction last night.

As a result of the deal, the investment authority known as ADIA will become one of Citigroup's largest shareholders, with a stake of no more than 4.9%. The stake will exceed that of Saudi Prince Alwaleed bin Talal, long known as one of Citigroup's largest shareholders, according to a person familiar with the situation.

"This investment, from one of the world's leading and most sophisticated equity investors, provides further capital to allow Citi to pursue attractive opportunities to grow its business," said Sir Win Bischoff, the bank's acting chief executive officer, in a statement.

The investment underscores the growing role that Middle Eastern investors are taking outside their home turf. Separately yesterday, 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. (See related article.)

"This investment reflects our confidence in Citi's potential to build shareholder value," said ADIA's Managing Director, Sheikh Ahmed Bin Zayed Al Nahayan.

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 between $31.83 and $37.24 a share over a period of time between March 2010 and September 2011. The investment, which came together in about a week, is expected to close within the next several days.

Citi is paying a higher interest rate than companies that borrow on the high-yield, or junk-bond, market; currently they pay roughly 9% for straight bonds. Typically, convertible bonds pay lower interest rates than straight bonds, although a particular bond's structure could affect the interest rate paid.

Yesterday, shares of Citigroup fell below $30 each for the first time since 2002, down 6.2% to $29.75 at 4 p.m.

Japanese stocks erased a morning fall of more than 2% after the Citigroup news was announced, on hopes that support for the company will ease fears about fallout from subprime problems.

ADIA, which is a client of Citigroup, won't have any special ownership rights and no role in Citigroup's management or governance. It also won't have any right to name a member to Citigroup's board.

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. This investment will help it achieve that goal.

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. Yesterday, the company said its executives are looking at ways to cut costs amid a worsening business environment.

"We are engaged in a planning process in anticipation of our new CEO, and our business heads are planning ways in which we can be more efficient and cost-effective to position our businesses in line with economic realities," spokeswoman Christina Pretto said in a statement.

Earlier this year, the company announced a plan to slash costs by, in part, eliminating about 17,000 jobs, roughly 5% of its global work force.

The bank is at risk of more losses because of 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 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 for a successor to Mr. Prince. Upon Mr. Prince's resignation, the board named senior adviser Robert Rubin chairman and appointed Sir Win, 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 breakup 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.