Friday, November 30, 2007

The recent "bailout" of Citigroup by the Abu Dhabi Investment Authority (ADIA) has once again highlighted the crucial role that sovereign funds will play in financial markets in the future.

The Abu Dhabi Investment Authority is the world's largest sovereign wealth fund(as mentioned in 'The Economist' article). Since 1976, the fund has never publicly revealed its total assets or published any accounts & provides very little information about its investments: in fact its website provides just its contact details.

But if the $875 Billion figure is accurate, the Citigroup deal represents just 0.86% of its overall assets.

Citigroup, the world's largest bank is paying junk bond rates (11%), to secure a $7.5 billion capital injection to shore up its balance sheet. The investment is via convertible securities that will convert to Citigroup common stock at $31.83 to $37.24 a share over the next two to four years.

The questions one needs to ask are 'How bad is the situation at Citigroup?' and 'How large are the fourth quarter writedowns going to be?'
The Citigroup stock is down over 43 % from it 52 week high, and the mortgage and credit crisis shows no signs of abating.

Heres yesterdays US dollar update from Economist magazine.

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