China and Prince Alwaleed to invest in Citigroup

  • This would be the third major investment, following Morgan Stanley and Bear Stearns, by a Chinese institution in a struggling Wall Street firm.
Prince Alwaleed bin Talal is poised to once again come to the rescue of Citigroup Inc.

This time, the Saudi billionaire is expected to be joined by other investors, including the China Development Bank, people familiar with the matter said.

While it isn't clear how much Prince Alwaleed will invest, the Chinese entity is expected to invest roughly $2 billion, one person said. Prince Alwaleed's total stake in Citigroup is likely to remain below 5% in order to avoid regulatory scrutiny. However, given that Citi has a stock-market value of $140 billion, even a 1% stake would end up being a significant sum of money.

While Citigroup is still working out details of the planned investments, and there's a chance they could fall apart, the bank is hoping to collect a total of $8 billion to $10 billion from a number of investors, likely including at least one fund affiliated with a foreign government, the people said.

In 4 p.m. composite trading on the New York Stock Exchange, shares of Citi rose 45 cents to $28.56.

A spokesman for Prince Alwaleed's Kingdom Holding Co. wasn't immediately available late Friday. A Citigroup spokeswoman declined to comment.

China Development Bank's investment may come in exchange for convertible bonds, the person said.

China Development Bank was set up in 1994 as one of the country's three policy banks. On Dec. 31, China's sovereign wealth fund China Investment Corp. made an infusion of $20 billion into the bank, in a move to turn the bank into a commercial lender.

This would be at least the third major investment by a Chinese institution in a struggling Wall Street firm. China Investment Corp. is investing $5 billion in Morgan Stanley, while Citic Securities Co. agreed to a $1 billion investment in Bear Stearns Cos., though Bear will also invest that amount in the Chinese firm, albeit over many years.

Citi is also talking to other existing shareholders, including U.S. investment funds, to potentially up their stake in the bank.

A cash infusion would leave Prince Alwaleed in a familiar role. In 1991, he pumped $590 million into what was then known as Citicorp. The investment, which was in the form of a private placement of convertible preferred stock, gave him an ownership stake of nearly 15% at the time. For years, he was Citi's largest individual shareholder.

Prince Alwaleed ceded that title last month, when Abu Dhabi's investment arm paid $7.5 billion for a 4.9% stake in the cash-strapped company. The prince is also a large shareholder in News Corp., the owner of Dow Jones & Co., the publisher of The Wall Street Journal.

In recent weeks, the bank's troubles have continued to pile up. Citigroup decided to bring onto its balance sheet $49 billion in assets from seven struggling investment affiliates, a move that further depleted its already-weak capital ratios. The New York conglomerate also is facing more than $15 billion in fourth-quarter losses stemming from its exposure to mortgage-related investment vehicles.

Citigroup is hoping to unveil the investments Tuesday when it reports fourth-quarter earnings. At the same time, the company also could announce that it is cutting its dividend payment.

(The Wall Street Journal)

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