27 November 2007

Arabs Bail Out Citigroup...AGAIN!!!!

In 2001, Saudi Prince Alwaleed bin Talal rescued Citigroup, and this time, it's the Abu Dhabi Investment Authority.

BTW, look at the terms:
  • They get a 4.9% stake.
  • In exchange for its investment, ADIA will receive convertible stock in Citigroup yielding 11% annually. (They are making the loan at 11%, when junk bonds get 9%, WTF????)
  • 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." (It's currently trading at $29.75, the lowest since 2002, so this means that the conversion essentially means that they are very nearly paying for this investment)
  • This gives them a bigger stake in the firm than Saudi Prince Alwaleed bin Talal. (remember him?)
If this company isn't functionally insolvent, then its management needs to go to be fired, and criminally investigated, because the only way a non-insolvent company takes a deal this bad is if someone is breaking the law.
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.
H/T The Big Picture.


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