The Middle East state's sovereign wealth fund clears a $1.1B profit on selling its Citigroup stake
By Fiona MacDonald and Poppy Trowbridge
(Bloomberg)—Kuwait Investment Authority, the nation's sovereign-wealth fund, sold its stake in Citigroup Inc. for $4.1 billion after helping the U.S. bank boost capital amid the worst financial crisis since the Great Depression.
The fund converted preferred securities of Citigroup (C) that it purchased for $3 billion last year into common shares and sold them, making a profit of $1.1 billion, KIA said in an e-mailed statement today.
The transaction "will be a confidence-booster," said M.R. Raghu, head of research at Kuwait Financial Center, a Kuwait- based investment bank, in a telephone interview. "It looks to be good news, making a profit in these times."
Sovereign wealth funds are selling investments in financial stocks as they seek to reduce risk and address domestic criticism over investment priorities. The funds, fueled in part by oil revenue, had become sources of capital around the world for companies including Citigroup and Morgan Stanley (MS), helping them to withstand the credit market seizure that followed the collapse of U.S. subprime mortgages.
Singapore's Temasek Holdings Pte, KIA and China Investment Corp. are among the sovereign funds that helped U.S. investment banks replenish more than $200 billion of capital. KIA and Temasek owned shares in Merrill Lynch & Co., which was bought by Bank of America in 2008 after the shares slumped 35 percent.
Saudi Arabia's Prince Alwaleed bin Talal remains a shareholder in New York-based Citigroup, even after an 88 percent drop in its stock price during the past two years. Alwaleed has been among the company's top shareholders since the early 1990s, when he helped rescue it from near-collapse. He said Dec. 1 that he expects 2010 to be a year of "stabilization" for the bank.
Barclays Plc (BCS), Britain's second-biggest bank, avoided a government bailout in part by selling 5.3 billion pounds ($8.7 billion) of stock and convertible notes to the Qatar and Abu Dhabi sovereign wealth funds. The bank's Abu Dhabi investors made a profit of 1.46 billion pounds when they sold shares in the lender in June.
Sovereign funds, together valued at about $3.2 trillion, operate as government-owned, special purpose investment vehicles.
To contact the reporters for this story: Fiona MacDonald in Kuwait at firstname.lastname@example.org; Poppy Trowbridge in London at email@example.com