Abu Dhabi agreed to buy $7.5 billion in Citigroup (NYSE:C) shares at about eight times the current price. According to Bloomberg, that desert nation’s major fund “invested in November 2007, getting equity units that can be swapped into common stock at $31.83 to $37.24 a share from 2010.” Abu Dhabi clearly believed that it could capitalize on the banks troubles bought on by the credit crisis and profit as the disaster passed.
Abu Dhabi now claims that Citi made “fraudulent misrepresentations” and wants to collect $4 billion in damages.
The fund took the same risks that any other buyer of Citi equity or debt did when the prospects of American banks were at their darkest point in eight decades. It took risks similar to the US government, which put TARP dollars into the bank and guaranteed part of potential losses on more than $300 billion of assets on Citi’s balance sheet. Abu Dhabi may have agreed to terms that turned out to be disadvantageous. It may have believed that Citi’s prospects would improve more than they did.
But, Abu Dhabi and its bankers are sophisticated investors. The notion that they were misled by fraud is preposterous.
Douglas A. McIntyre
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