FT : GIC In HUGE Citibank Move

Wednesday, January 16, 2008

Citigroup and Merrill Lynch turned to foreign investors for an unprecedented bail-out on Tuesday, saying they would raise a total of $21.1bn in fresh capital – mainly from outside the US – to shore up balance sheets devastated by the subprime mortgage crisis.  Citigroup also unnerved investors by warning of losses to come from consumer loans as it revealed a 40% dividend cut, a $9.83bn fourth-quarter loss, $18bn in subprime-related credit writedowns and remaining exposure of $37bn to subprime mortgages…..Citigroup is raising $14.5bn and Merrill $6.6bn, largely from private investors and governments in the Middle East and Asia, representing the biggest-ever single transfer of capital to US banks from abroad.  It could raise pressure from US politicians concerned about foreign influence on the US banking system.  “Not since before World War I have companies gone looking for foreign capital as much as they are now,” said Charles Geisst, a Wall Street historian.  “It poses a number of significant problems.”

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Before Tuesday, UBS had raised $11.9bn from the Government of Singapore Investment Corporation and Middle Eastern investors, Citi $7.5bn from the Abu Dhabi Investment Authority, Morgan Stanley $5bn from China Investment Corporation and Barclays $5bn from China Development Bank and Singapore’s Temasek Holdings…..The Government of Singapore Investment Corporation will invest $6.88bn in Citi.  Other investors include the Kuwait Investment Authority; Prince Alwaleed bin Talal, one of Citi’s biggest shareholders; Sandy Weill, former chief executive; and the New Jersey investment division.  It will also seek to sell $2bn of securities to public investors.  Vikram Pandit, Citi’s new chief executive, said the size of the fundraising was intended to ensure that the bank remained well capitalised even in the face of a serious US downturn.  “There is no doubt we’re in the midst of a very challenging environment,” he said.  Merrill Lynch, which is expected to report a heavy loss on Thursday, said it would raise $6.6bn by issuing mandatory convertible preferred stock in private placements to investors, primarily the Korean Investment Corporation, the Kuwait Investment Authority and Mizuho Corporate Bank of Japan.  John Thain, who took over at Merrill in the wake of the subprime crisis, said the transactions would “make certain” that the company remained well capitalised.

Reference : http://www.ft.com/cms/s/0/4691ecf4-c39f-11dc-b083-0000779fd2ac.html

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