Interest Rate Roundup

Tuesday, January 15, 2008

Citigroup's and Merrill's dash for cash

Good morning folks. As expected, both Citigroup and Merrill Lynch are announcing the details of their capital-raising hunt. Citigroup said it raised $12.5 billion by selling convertible preferred securities in a private placement.

The Government of Singapore Investment Corp is ponying up $6.88 billion. Other investments are coming from the Kuwait Investment Authority, Capital Research Global Investors, Capital World Investors, the New Jersey Division of Investment, Prince Alwaleed bin Talal bin Abdulaziz Alsaud of Saudi Arabia (who was behind the rescue of the former Citibank way back in the early 1990s and who owns about 4% of the company already), Sanford Weill (the former Chairman and CEO of Citigroup), and Timmy the neighborhood paper boy, who was asked to pony up the 50 bucks he raised this past summer (just kidding about that last one).

Citigroup is also selling about $2 billion in additional preferreds to public investors. And it's cutting the quarterly dividend to 32 cents per share from 54 cents a share. This is the second round of capital raising, following a move to raise $7.5 billion from Abu Dhabi in November.

In other news, Citigroup took an $18.1 billion write down on various subprime-related exposures and securities. That was largely expected. What may be more significant is the deterioration in the credit quality of the company's loan portfolio. Specifically, Citi said credit costs in the U.S. consumer business surged $4.1 billion (including a charge of $3.31 billion to boost the bank's loan loss reserve due to rising delinquencies on 1st and 2nd mortgages, personal loans, credit cards, and car loans -- in other words, a little bit of everything). Net income plunged 71% year-over-year in the global consumer unit and 89% in alternative investments, while rising 27% in global wealth management.

Moving on to Merrill, the brokeage firm raised $6.6 billion by selling its own batch of preferred shares to the Kuwaiti Investment Authority, Mizuho Financial Group of Japan, the Korean Investment Corp. and various U.S. money management clients, as well as Vinnie the Fish, formerly of Bayonne, N.J., current address unkown (yes, that last one is a joke too). As you're probably aware, Merrill has already raised $6.2 billion from Singapore's Temasek Holdings and Davis Selected Advisors.


Post a Comment

<< Home

Site Meter