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Citigroup won a vote of confidence from Saudi Prince Alwaleed bin Talal, its largest individual investor, who said today he plans to boost his stake in the US banking giant to 5 per cent from less than 4 per cent.
Shares of Citigroup initially rose more than 6 per cent in premarket trading following the news, but later they gave up those gains and were down 2 per cent.
The shares tumbled 23 per cent yesterday to a 13-year low as investors questioned the survival prospects of the US banking giant.
“Spreads are widening on pretty much everything,” said Keith Davis, a bank analyst at Farr, Miller & Washington. “Given that backdrop, how much capital is Citi going to need to shore up their balance sheet? I don't think anyone knows, and so the knee-jerk reaction is to sell first and ask questions later.”
In a statement, Prince Alwaleed said he believes the shares are “dramatically undervalued” following a nearly 90 per cent plunge since late 2006. Citigroup's market value was $34.9 billion yesterday, meaning that Prince Alwaleed plans to invest at least $349 million, based on yesterday's closing price.
Prince Alwaleed expressed “full and complete support to Citi management”, including embattled Chief Executive Vikram Pandit.
He said the New York-based bank is “taking all the necessary steps to position the company to withstand the challenges facing the banking industry and the global economy.”
Prince Alwaleed added that he is "fully confident that Citigroup's universal banking model and global franchise will make it a long-term winner in the financial services industry.”
The prince's percentage stake in the bank was reduced in late 2007 and early 2008 as Citigroup raised some $50 billion of capital from sovereign wealth funds and other investors, including Alwaleed, to shore up its balance sheet. It recently received another $25 billion under the US government's bank bailout package.
Shares of Citigroup have fallen 78 per cent this year. They lost one-third of their value in the first three days of this week as investors worried that Mr Pandit's plan to cut expenses by 20 per cent and eliminate 52,000 jobs won't restore the bank to health.
