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Tuesday, November 27, 2007

Citigroup Raises $7.5 Billion

Citigroup to Raise $7.5 Billion From Abu Dhabi State (Update2): “Citigroup Inc., the biggest U.S. bank by assets, will receive a $7.5 billion cash infusion from Abu Dhabi to replenish capital after record mortgage losses.”

This might be the catalyst to give the financials a little bit of a relief pop.

“With the purchase of a 4.9 percent stake, Abu Dhabi, the largest emirate in the United Arab Emirates, would rank as Citigroup's largest shareholder ahead of Los Angeles-based Capital Group Cos. and Saudi billionaire Prince Alwaleed bin Talal, data compiled by Bloomberg show.

Mortgage writedowns cut Citigroup's “tier 1” ratio, a metric used to assess banks' ability to weather loan losses, to 7.3 percent on Sept. 30. The figure, while above U.S. regulators' 6 percent threshold for a “well-capitalized” bank, was below the bank's 7.5 percent target.

The Citigroup equity units that ADIA will purchase can be swapped for as many as 235.6 million shares starting in 2010. The securities will convert into Citigroup shares at prices ranging from $31.83 to $37.24 between March 15, 2010 and Sept. 15, 2011. Citigroup fell to $29.80 in New York Stock Exchange composite trading yesterday, the lowest price in five years, and traded in Germany at $31.51.

“The structure of the deal suggests that Abu Dhabi is very bullish, effectively participating in the upside beyond $37.24, and sharing in the downside below $31.83,” said George Nikas, who helps manage $1 billion at Deutsche Bank AG in Sydney.

Abu Dhabi will have “no role in the management or governance of Citi, including no right to designate a member” of the company's board, Citigroup said in its statement.”

If the markets can’t build a little bit of positive momentum on this, then that would be a bad sign indeed.

Citigroup Plans Cost Cuts After Mortgage Writedowns (Update1): “Citigroup Inc., the largest U.S. bank, is reviewing ways to cut costs as it seeks a new chief executive officer and grapples with mortgage writedowns that may lead to the first quarterly loss since at least 1998.

Citigroup may cut as many as 45,000 jobs in the next two months, CNBC reported earlier today, citing unidentified people within the company. CNBC also said the bank had “no timetable or set numbers” for the cuts. Citigroup spokeswoman Pretto said “any reports on specific numbers are not factual.””

Maybe the combination of a cash infusion and job cuts can breathe some life into Citigroup for a little while.

U.S. Notes Fall; Citigroup Equity Sale Cuts Demand for Safety: “Treasury two-year notes fell the most in almost a month after Abu Dhabi agreed to invest $7.5 billion in Citigroup Inc. and the Federal Reserve pledged funds needed to avoid a year-end shortage of capital.

The promises calmed investors who drove two-year yields to 2.87 percent yesterday, the lowest since December 2004. The Fed said yesterday it will provide funds to the money markets, while the Citigroup purchase may help the world's biggest bank replenish capital hurt by subprime mortgage-related writedowns.

“The buying pressure on Treasuries has gone away,” said Christoph Kind, a Frankfurt-based fund manager at Frankfurt Trust Investment GmbH, which manages about $9 billion in fixed- income assets. “The news about Citigroup restored confidence a little. There's more value left in other bond markets.”

The “TED” spread, or the difference between three-month bill yields and the London interbank offered rate, narrowed 1 basis point to 1.94 percentage points, still near the widest since Aug. 20. The decline indicates easing willingness among banks to lend to each other. Three-month Libor still rose for a 10th day today to 5.06 percent, the highest in four weeks, the British Bankers' Association said today.”

Yen Declines as Citigroup Stake Sale Revives Carry-Trade Demand: “The yen fell against the world's 16 most-active currencies after Abu Dhabi said it will buy a stake in Citigroup Inc., giving investors confidence to buy higher yielding assets with loans from Japan.

The yen declined the most in two weeks against the dollar after the biggest U.S. bank announced the $7.5 billion cash infusion, which will shore up its capital following record losses related to subprime mortgages. The yen dropped the most against the New Zealand and Australian dollars, favorites of so-called carry trades. The dollar rose versus the euro and the U.K. pound.

“The market has taken this as a positive sign that there is funding out there for these banks should they need it,” said Daragh Maher, London-based senior currency strategist at Calyon, the investment-banking arm of Credit Agricole SA. “This has reduced some of the strain and given carry-trade investors a boost in what is clearly a very jumpy environment.””


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