Shrinking Citi

May 9, 2008

pandit.jpgCitigroup chief Vikram Pandit has sold off assets here and there in the months since taking over the top job, including stakes in CitiStreet, CitiCapital and Diners Club. But with sources saying some $400 billion of extraneous assets are going on the block, it’s fair to ask whether the head of the country’s biggest bank is being boldly aggressive or slamming the panic button.

“The only reason you’d sell off that many assets is you have a lot more losses coming than you originally thought,” said Jim Huguet, co-chief executive at fund manager Great Companies LLC, which does not own Citi shares. Since late last year, Citi has recorded more than $45 billion of writedowns and credit losses, raised more than $40 billion of new capital including $2 billion of preferred shares this week, and slashed its dividend 41 percent. The Financial Times, which first reported the story on Thursday, said the moves would take place over several years.

Global economic instability has created huge investment opportunities for China Investment Corp, but the sovereign wealth fund’s head said he will be careful not to destabilize countries where it operates. CIC paid $5 billion in December for a stake in U.S. investment bank Morgan Stanley but has otherwise kept its powder dry as Western financial institutions have sought to replenish capital depleted by big subprime credit losses. “The current international market turbulence has produced unprecedented investment opportunities,” said Lou Jiwei, head of the $200 billion sovereign wealth fund. “In the 1990s, some hedge funds exploited defects in the macroeconomic policies of some emerging economies and attacked them, which damaged their economies and caused hardship for people,” he said. “CIC will certainly never do a similar thing.”

Sovereign Bancorp, the second-largest U.S. savings and loan, plans to raise just over $1 billion in an equity offering to help it navigate a difficult economic environment, according to a person close to the transaction. The offering will be broadly distributed to institutional investors and will likely be conducted over the weekend. Sovereign is determining how much Banco Santander, which has a 24.99 percent stake in the thrift, might participate in the offering, while keeping any transaction with the Spanish bank at arms-length, the person said.

Google expects to launch new products for its YouTube Web video service in the next few months and sees reason for closer cooperation with Yahoo, Google Chief Executive Eric Schmidt said. Schmidt has said getting the video sharing site to make money is the Web search company’s top priority for the year. He did not give details of the products, however, and they are not even in beta testing. The Web search leader played a large role in the takeover battle between Microsoft and Yahoo. During a two-week test, it sold search advertisements on rival Yahoo last month as part of Yahoo’s attempt to find an alternative option to Microsoft’s offer. Schmidt said the trial run provided good reason for the companies to discuss cooperation, but there was no deal yet.

Other deals of the day:

* U.S. private equity firm The Carlyle Group will lead a 58.1 billion yen ($560 million) management buyout of an LCD glass venture jointly owned by Japan’s Hoya Corp and Nippon Sheet Glass, Hoya said.

* Norwegian aluminum group Norsk Hydro said it has agreed to buy privately owned Spanish aluminum building systems group Alumafel for 77 million euros ($118 million).

* Shares in British engineering software firm Flomerics Group surged after rejecting a buyout offer from larger U.S. rival Mentor Graphics, saying it would explore interest from several other parties.

* A local fund managed by U.S-based Lombard Investments plans to buy 10 percent of Asiasoft Corp, Thailand’s top online gaming firm, for up to $11.3 million, partly via an IPO this month, an IPO underwriter said.

* Australia’s Macquarie Group is interested in buying a key part of German power giant E.ON as it prowls for investment opportunities, one of its top managers said.

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