In a move that may be a victory of hope over reason, the investment arm of the Abu Dhabi government has put $7.5 billion into Citigroup (C).
Wall St. may never know how much Citi shared with its new investor and how much the new shareholder knows about the bank’s balance sheet.
What is certain is that Abu Dhabi is taking a huge risk that most of the write-offs at Citi are behind it and that it will not be forced to raise even more capital within the next few months.
Citi’s balance sheet and its relationship with certain SIVs that it has set up are still very poorly understood, so the bank may be a bit of a powder keg. A severe drop in the value of mortgage-related instruments owned by the bank or its SIVs could be the match that sets it off.
Abu Dhabi may rue the day that it wrote the check.
Douglas A. McIntyre
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