Bush bails out Citigroup: Major shareholders are Saudi Arabia and Abu Dhabi

[Ichingcarpenter]

WASHINGTON (AP) -- The government unveiled a bold plan Sunday to rescue troubled Citigroup, including taking a $20 billion stake in the firm as well as guaranteeing hundreds of billions of dollars in risky assets.


The action, announced jointly by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp., is aimed at shoring up a huge financial institution whose collapse would wreak havoc on the already crippled financial system and the U.S. economy.

The sweeping plan is geared to stemming a crisis of confidence in the company, whose stocks has been hammered in the past week on worries about its financial health.

"With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy," the three agencies said in a statement issued Sunday night. "We will continue to use all of our resources to preserve the strength of our banking institutions, and promote the process of repair and recovery and to manage risks," they said.

The $20 billion cash injection by the Treasury Department will come from the $700 billion financial bailout package. The capital infusion follows an earlier one -- of $25 billion -- in Citigroup in which the government received an ownership stake.

In addition, Treasury and the FDIC will guarantee against the "possibility of unusually large losses" on up to $306 billion of risky loans and securities backed by commercial and residential mortgages.

http://biz.yahoo.com/ap/081124/citigroup.html


From Last year:.... on ownership!!

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. (See related article1.) ADIA, which has almost $1 trillion under management, this summer bought a small stake in Apollo Management LP."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.

http://www.gata.org/node/5788

[Ichingcarpenter]

1. The United Autoworkers Union has yet made a statement

I'm outraged by this Sunday action myself.

[originalpckelly]

2. Ways to save auto companies: let Saudis buy stakes in them...

[still_one]

3. The bailout actually might prevent the saudis from taking over this American bank, however

the 10 BILLION dollars a month we have been spending in Iraq, along with the 750 BIllion dollar financial bailout without accountability, makes it pathetic that they will not enough supply a 25 billion dollar bridge loan to the U.S. auto companies, which is a drop in the bucket compared to what they have been wasting

[Ichingcarpenter]

4. Dr. Richard Reich says it saves investors and stockholders more that the bank

Citigroup was once the biggest U.S. bank. General Motors was once the biggest automaker in the world. Now, both are on the brink. Yet Citigroup is likely to be rescued within days. General Motors may not be rescued at all.

Why the difference? Viewed from Wall Street, Citi is too big and important to be allowed to fail while GM is simply a big, clunky old manufacturing company that can go into chapter 11 and reorganize itself. The newly conventional wisdom on the Street is that the failure of the Treasury and the Fed to save Lehman Brothers was a grave mistake because Lehman's demise caused creditors and investors to panic, which turned the sub-prime loan mess into a financial catastrophe -- a mistake that must not occur again. But GM? GM is only jobs and communities. Citi is money.

The Street's view of the world is fundamentally flawed. Banks are important to the economy because they're financial intermediaries. They connect savers with investors and borrowers. This is a vital function, but there's nothing magical about it. At any given time the world contains a vast pool of money that can be put to all sorts of uses. Financial intermediaries simply link the pool to the uses.

To be sure, savers need to believe that intermediaries are trustworthy; otherwise, savers will prefer the underside of their mattresses. That's why governments regulate intermediaries, insure deposits, and do whatever else needs to be done to make savers feel safe. What governments and societies fear most are "runs" on banks -- panicked efforts by depositors to pull their money out all at once, before banks can possibly collect the money from all those who have used it to borrow or invest. That's what happened in the 1930s.

But the current panic on Wall Street is not a "run" in this sense. It has almost nothing to do with banks' roles as financial intermediaries. It's about money that's been lent to or invested in the banks themselves, in order to profit off of the banks' profits. Lehman's demise cost many investors and creditors lots of money, to be sure, but they were investors and creditors in Lehman, not in the real economy.

Before the asset bubbles burst, financial institutions were generating whopping profits, so naturally they attracted many investors and creditors. After the burst, the profits disappeared. These days, you'd be hard pressed to find many people who want to invest in or lend to financial institutions. Citigroup had a market value of $274 billion at the end of 2006. Now its value is about $21 billion. That's awful news for Citi, its executives and traders, and its investors and creditors. But it's not necessarily awful news for the economy as a whole. Even if Citigroup were to go belly up, the real economy would not be seriously harmed. The mutual funds, pension funds, and deposits overseen by Citi would be safe; fund managers would find their way to other banks.

In other words, Citigroup is not much different from General Motors. It's a company that once made lots of money but, through a series of management blunders, is now losing money hand over fist. Just like the shareholders and creditors of GM, Citi's shareholders and creditors are taking a beating.
>>>>>snip
http://robertreich.blogspot.com/2008/11/why-citigroup-is-about-to-be-bailed-out.html

[Bozita]

5. K&R

[BrklynLiberal]

6. Bailing out ANOTHER bank and letting the auto companies sink???

There is definitely something REALLY rotten on Wall Street and in DC!!!

[SmileyRose]

9. union busting.

it's not exactly rocket science.

[SammyWinstonJack]

18. Bingo!

[BrklynLiberal]

21. I agree....

[JCMach1]

7. I am royally angry about this...

Sorry, but if something is TOO BIG to fail it deserves to be broken-up. It's time to end the monopoly that some of these banks have.

Abu Dhabi has been bailing CITI out for over a year now... that's why their equity amount is so large.

[SpiralHawk]

8. "Smirk." - Commander AWOL & Intimate Saudi Cronies

"I hope no one brings up the FACT that virtually all the 9/11, um, terrorists, or whatever, were from Saudi Arabia. Sheesh, that would be embarassing."

- Commander AWOL

[underpants]

10. a "crisis of confidence"? This isn't a lack of confidence is their phony money

this is a lack of performance and a lack of ability

they are trying to make it sound like it is only a rumor "what people are saying" not the implosion of a self-taught completely nonexistent circle of groupthink

[Skidmore]

11. He really earned those solid gold palm trees he was gifted, didn't he?

Suppose we can get congress back in session on the outrage of this alone?

[Coexist]

12. is this why oil prices have come down? an agreement for this?

we save the rich foreigners and screw the American workers?

[Romulox]

13. Uh, "let the market decide"?

[Kablooie]

14. Something is beginning to smell very fishy about this bailout orgy.

It seems that someone is intent on bankrupting the country before Obama takes charge.

[Romulox]

15. Obama has been 100% on board with the bailout to this point. nt

[formercia]

16. Citigroup = Bush

Ask the people of Argentina about Citi. If there ever was a bank that needed to die, it's Citi.

[Skidmore]

17. Perhaps it's time for some of those Saudi sheikhs to have garage sales

and sell of the gold bathroom fixtures and fleets of fancy cars.

[Romulox]

19. They will, but they're planning on selling the things in YOUR garage. nt

[Julius Civitatus]

20. Have a heart! The Saudi princes need more solid-gold urinals

for their summer residences.

:sarcasm:

[HamdenRice]

22. I thought the Saudi and Gulf investors were essentially wiped out

Didn't the Saudis and UAE investors purchase common stock? If so, then between the fall in the stock price from $55 to around $4, plus the first round of fed infusion to purchase preferred and warrants, and this second round, wouldn't that pretty much wipe out the entire Saudi/UAE investment, reducing it to worthless paper?

Hardly a bailout of the Saudis.