Skip to main content

Citi takes the money and runs

Today we heard about the "investment" in Citigroup by an entity controlled by the government of Abu Dhabi. Citi will receive a $7.5 billion cash injection by selling a stake in the firm to the Abu Dhabi Investment Authority, the sovereign wealth fund that acts as the investment arm of the Abu Dhabi government.

The Investment Authority will receive equity units that pay an 11 percent annual yield until they are converted into Citigroup common shares at a price of up to $37.24 a share between March 15, 2010, and Sept. 15, 2011.

I was reminded of a post I recently read at the Information Arbitrage blog. (Read the post here) It was titled "Looking Overseas for a U.S. Financial Sector Bail-Out: It'll Cost You."

The author, Roger Ehrenberg (who also quotes Thorold Barker, a writer for the Financial Times), points out that the sovereign funds have "lots of investable cash at a time when relative bargains might become available. And given the scarcity value of their liquidity and the rough shape of many U.S. financial firms, they will likely demand far more onerous terms than they've gotten previously."

At a coupon rate of 11 percent, Citi is paying junk bond prices for the cash it is receiving. These are indeed terms better than were offered previously. Ehrenberg and Barker seemed to have called the play quite accurately.

There have been a number of publications and blogs that have focused on that 11% rate, considering it expensive and an admission by Citi that they are in desperate shape. There has been one blogger who feels it is a good deal for Citi. Andrew Clavell has written on his blog, Financial Crookery, a post (read it here) that describes how Citi is actually receiving "funds for 4 years at a cost equivalent to another financing source of Libor+150." He refers to it as "smart business" on the part of Citi.

Be that as it may, it also seems to be smart business for the Abu Dhabi Investment Authority who will collect a nice premium to the current dividend.

Disclosure: author is long C

Comments

Popular posts from this blog

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. (Click here to read the original post)

There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position.

This first post in the series starts at the beginning: getting good investment ideas.

Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets.

As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street professionals and …

Unlock Stock Market Profits - Key #4

This is the fourth article in a series of posts describing 10 tools to help you identify and evaluate good investing ideas. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. (Click here to read the original post)

With this fourth post, we will continue another step along the path of finding stocks that seem to have some potential. The first post in the series discussed how to use unusual activity to identify investing ideas. The second post described how to use stock screeners. The third post described how to use lists of new highs and new lows. This post will focus on identifying social or business trends in order to find investing ideas.

Information on new trends might turn up anywhere. In conversation with friends or business associates, in newspapers or magazines, on TV or though your work. The key is to be aware of trends and how they start, stop or change. We'll start by describing what to lo…

Free stock alerts, Trend Leaders, Bollinger Band Breakouts and Cash Flow Kings for Jan 16, 2009

This post is to announce that the latest list of free stock alerts is up and available at Alert HQ. Each week we scan over 7400 stocks and ETFs looking for fresh BUY and SELL signals. We apply a combination of proprietary and standard technical analysis techniques to identify those stocks that are beginning to move. Our goal is to identify stocks or ETFs that are undergoing reversals, either to the upside or to the downside.

Wait, there's more...

We also use the Alert HQ process to generate more free lists of stocks and ETFs

The first byproduct of the Alert HQ process is the Trend Leaders list, our collection of stocks in strong up-trends. These stocks are registering strong signals using Aroon analysis, DMI and MACD. They are also above their 50-day exponential moving average. This week's list is now available at the TradeRadar site on the Trend Leaders page.

As another byproduct of the Alert HQ process we have generated a list of stocks that have broken either above their upper…