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Citibank gets $7.5 billion from Abu Dhabi Investment Authority for 4.9% stake


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Abu Dhabi Investment Authority is injecting $7.5 billion dollars into a bank battered by expected subprime losses. In exchange, the Abu Dhabi Investment Authority (ADIA) will receive a 4.9% stake in the form of convertible stock in the largest financial institution that traditionally could fund itself, but now needs external sources of capital. The deal has already been approved by U.S. regulators. In case you were wondering how first by inflation, then by deflation how we will wake up slaves on the continent our father’s founded, this is it happens.


The ADIA fund, which invests the oil surplus of the richest city state within the United Arab Emirates, has agreed to play no part in the bank’s management and will have no right to appoint a director to the board. When the equity units convert to shares, Abu Dhabi ruling family, headed by Sheik Khalifa bin Zayed al-Nahyan, will become the bank’s biggest shareholder, replacing Kingdom Holdings, which has a 3.6pc stake. the Abu Dhabi Investment Authority has over $650 billion in assets. In recent years ADIA been joined by funds controlled by the governments of China, Singapore and others.


Ironically, Kingdom (controlled by Saudi Prince Alwaleed Bin Talal) bought the bulk of its stake in 1991 during the bank’s Latin American crisis. Analysts, however, also focused on the price Citigroup is paying for the AIDA investment, which is expected to be completed by the end of the week.


The deal was structured in the form of convertible securities that will require the company to pay junk-bond levels of coupon interest, reported by Barron's to be close to 11%, for the privilege of selling part of America's premier consumer financial institution into foreign hands. The sad part is that this deal may not be enough and Citigroup may be forced to sell more than $100 billion of higher quality assets at a discount in order to raise cash.


Each equity unit being sold will convert into the bank’s shares at prices ranging from $31.83-$37.24 a share between March 2010 and September 2011. Until conversion, each unit will pay interest quarterly, a fixed rate of 11pc per annum.


The origins of Citigroup go back to the founding of the City Bank of New York in 1812. Over these past 195 years, the institution has been carefully built and nurtured, and its prosperity has enriched countless thousands of American stockholders. That wealth creation, as it circulated around and across the American economy, also enriched the American community as a whole.


In essence, in commencing the process of selling away America's remarkably innovative and profitable financial system, the country will now be paying a rent, in the form of the profits accruing to Abu Dhabi and the other SWF buyers that must surely follow its lead, equal to what it once collected for itself. How long before they start to scream about our financial system being taken over by oil dollars…or will they?

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