Desperate Citigroup looks East for cash

It's come to something when America's biggest bank has to "go cap in hand" to the Middle East for money, said Jeremy Warner in The Independent.

Citigroup (C) has raised $7.5bn from the Abu Dhabi Investment Authority (ADIA), a state-owned investment fund from the United Arab Emirates.

So much for the idea that banks having raked in so much money in the good times are so well capitalised that they can weather the credit crunch.

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The Gulf is buying convertible bonds; in the next four years the loan will turn into a shareholding of almost 5%, said James Harding in The Times. But Citigroup is paying an "extraordinarily high" interest rate of 11%. A firm resorting to junk bonds "would typically pay 9%". It seems Citigroup was so "desperate" for cash that "it did not mind the price".

When you consider how "sniffy" America got when Dubai Ports bid for P&O's ports in the US, Citigroup's hasty acceptance of this deal (clinched in under a week) "is positively indecent", said The Daily Telegraph's Tom Stevenson.

What next?

The deal could be a template for other banks hit by the subprime crisis, said the FT. Already Middle East and Asia investment funds have bought an estimated $37bn shares in Western financial companies this year. The Gulf is awash with cash and increasingly flexing its financial muscle abroad, said Harding: the global balance of economic power has shifted.