Now remember too that if Abu Dhabi had bought 235 million shares outright at $31.83, it
would be receiving a dividend yield on those shares of 7.4%. So the coupon on the bonds
has to be at least 7.4% to make up for lost dividends. Then, on top of that, there needs
to be a bit of extra coupon to make up for the fact that Abu Dhabi is not going to
participate in most of the first 17% of any price appreciation in the stock.

I could be wrong, but I believe the first reaction from some of the pundits and analysts
was too negative. Perhaps the blogger at Financial Crookery understood this financing
better than did Meredith Whitney.

This blog post puts in English some of the concepts discussed in more technical terms in
the post above.

HREF="http://www.portfolio.com/views/blogs/market-movers/2007/11/27/why-citis-11-coupon-do
esnt-mean-its-paying-junk-rates">Why 11% coupon is not junk rates

Abu Dhabi will receive a maximum of 235 million shares, if the share price at the time
of conversion is less than $31.83. It will receive a minimum of 201 million shares, if the
share price at the time of conversion is greater than $37.24. But as a result, Abu Dhabi
essentially loses out on a very large part of that 17% share price appreciation from
$31.83 up to $37.24.

Here's a blogger who thinks that FT and WSJ missed the point on this financing, and that
Citi got a pretty good deal.

HREF="http://crookery.blogspot.com/2007/11/citibank-adia-and-that-pesky-11.html">Financial
Crookery

"Put another way, Citi has raised tax deductible, upper tier capital funds for 4 years
at a cost equivalent to another financing source of Libor 150. Smart business."

My next question is, where's the outrage from Fox news that we saw when Dubai wanted to
buy a damn PORT, fer chrissakes? Oh, but this is *different*; this is about saving Our
Fiscal Overlords.

Last edited on: 11-27-2007 12:16 pm

In doing a little reading, I find it humorous to point out that, during 2006, C spent
roughly the same amount of money on a stock buyback between 45 and 55.

The suspicion that wants to form in my mind is... 11% for what's essentially a 2-year call
LEAP for shares around 20% out of the money. Why didn't they go to the discount window,
where it would be cheaper? Or was it that they *couldn't* for some reason?

Is anybody considering a position in C right now or are we still waiting to see how low it
goes?

Barry Ritholz writes "Citibank has essentially become a sub-prime borrower -- only without
the advantages of teaser rates!"

Oooh, next best line: Tanta calls it "pork chop financing," as in, a child so ugly the
parents have to tie a pork chop around its neck so the dog will play with it.

Last edited on: 11-27-2007 09:41 am

Whoever's running that Abu Dhabi SWF apparently doesn't believe much in charts. No way on
earth would I buy that chart here.

WSJ: Abu Dhabi Invests
$7.5 Billion in Citigroup

Citigroup Inc., seeking to restore investor confidence amid massive losses due in
credit markets and a lack of permanent leadership, is receiving a $7.5 billion capital
infusion from the investment arm of the Abu Dhabi government.

In exchange for its investment, ADIA will receive convertible stock in Citigroup
yielding 11% annually. The shares are required to be converted into common stock at a
conversion price of between $31.83 and $37.24 a share over a period of time between March
2010 and September 2011.

Hard to tell exactly how much dilution this is. My guess is that the market will view it
as a positive.

Last edited on: 11-26-2007 10:27 pm

And, THAT'S why the new CEO needs the total flexibility to quickly admit to the
mistakes of Chuck Prince and sell off his acquisitions, even if that implies slightly
reduced earnings down the road.

That's also why I'm concerned about Rubin and Parsons making the selection.