16 Dec 2009
Dec. 16 (Bloomberg) -- Citigroup Inc. said the Abu Dhabi Investment Authority is seeking to end an agreement to buy the bank's stock for more than 8 times its current price, or to receive more than $4 billion in damages if the deal is upheld.Abu Dhabi Investment, one of the world's top two sovereign wealth funds, filed a claim alleging "fraudulent misrepresentations" tied to its agreement to buy $7.5 billion of common stock, Citigroup said yesterday in a statement. The claims have no merit, Citigroup said. Abu Dhabi Investment would buy the shares for $31.83 to $37.24 apiece, under the agreement.
The New York-based bank announced this week that it would sell common shares to help repay $20 billion in bailout funds to the U.S. government. "It is going to be tough" for Abu Dhabi to evade losses tied to the agreement, said Eric Barden, chief investment officer of Barden Capital Management in Austin, Texas.
"They are pushing the limit in terms of how much they think Citigroup is willing to subsidize a mistaken investment," he said in a telephone interview.
Citigroup shares declined 89 percent since the end of November 2007. They fell 14 cents to $3.56 yesterday in New York Stock Exchange composite trading. Citigroup spokesman Stephen Cohen declined to comment.
"Citi believes the allegations are entirely without merit and intends to defend against them vigorously," according to the statement.
Equity Agreement
Abu Dhabi Investment purchased Citigroup equity units in November 2007, the bank said. The units require Citigroup to remarket junior-ranking debt securities, then proceeds would be used to buy Citigroup common stock in four equal installments starting next March, according to a 2007 statement.
The bank, the only major U.S. lender still dependent on what the government calls "exceptional financial assistance," said this week it will sell at least $20.5 billion of equity and debt to exit the Troubled Asset Relief Program. The U.S. Treasury Department also plans to sell as much as $5 billion of common stock it holds in the company, and will unload the rest of its stake during the next six to 12 months.
The company also plans to substitute "substantial common stock" for cash compensation, Citigroup said in a statement on Dec. 14.
The U.S. government agreed to forgo billions of dollars in potential tax payments from Citigroup as part of the deal to repay TARP, the Washington Post reported today, citing an exception to long-standing tax rules issued by the Internal Revenue Service on Dec. 11.
The IRS exception will allow Citigroup to retain billions of dollars worth of tax breaks that otherwise would decline in value when the government sells its stake to private investors, the Washington Post report said.
‘Unhappy'
Jacob Frenkel, a former U.S. Securities and Exchange Commission lawyer now in private practice, said "it is impossible to draw any conclusions" about how the Abu Dhabi claim may affect Citigroup's plans.
"Whenever an investor is unhappy with an investment the natural thought is to sue," he said in a telephone interview. "The goal may not be the damages they claim. It could well be as simple as renegotiating the terms of the securities."
The investment authority, created in 1976, managed $328 billion at the end of last year, according to estimates by economists at the Council on Foreign Relations.
