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article imageAbu Dhabi to Sue Citigroup for $4 Billion

By Chris Dade     Dec 16, 2009 in Business
The Abu Dhabi Investment Authority (ADIA), the sovereign wealth fund owned by the oil-rich state in the United Arab Emirates (UAE) which shares its name, is suing the U.S. bank Citigroup for what it claims is fraudulent misrepresentation.
In 2007 ADIA, founded in 1976 with a mission to "secure and maintain the current and future prosperity of the Emirate of Abu Dhabi through the prudent management of the Emirate’s investment assets", reached an agreement with Citigroup, which on Monday announced it would be repaying the $20 billion it received from the U.S. government under the Troubled Asset Relief Program (TARP), to buy shares in the bank worth $7.5 billion between March 2010 and September 2011.
However, as the London Times reports, the price ADIA is due to pay Citigroup for each share it agreed to purchase two years ago is in the range $31.83 through $37.24. And yesterday shares in the U.S. bank, one of the world's largest financial services companies, closed at only $3.56.
As a consequence ADIA is seeking to annul the agreement it reached with Citigroup, and planning to sue the bank for $4 billion in damages if it cannot extricate itself from that agreement. The claim for damages is based upon alleged "fraudulent misrepresentations” by Citigroup, according to Bloomberg "the only major U.S. lender still dependent on what the government calls 'exceptional financial assistance'”.
At the time the investment agreement was signed the 11 percent annual interest being paid on the bonds that would eventually be converted in to shares was considered by analysts to represent "a great deal" from the viewpoint of ADIA, or in reality Abu Dhabi, the state which gave a $10 billion bailout to its neighbor Dubai, another member of the UAE, on Monday.
Now some analysts are saying that they are not surprised by the claim being pursued by ADIA, Citigroup has indicated that it ""believes the allegations are entirely without merit and intends to defend against them vigorously", but are of the opinion that success for ADIA, a situation considered unlikely by at least one analyst, would set a dangerous precedent as other Citigroup investors may attempt to recoup their losses.
Walter Todd of Greenwood Capital Management is quoted by the London Times as saying that a victory for ADIA could "open a can of worms for a lot of firms who were raising capital at the time".
Another analyst has suggested that Citigroup CEO Vikram Pandit should simply revise the price ADIA must pay for each share down to $10.
Indeed former U.S. Securities and Exchange Commission lawyer Jacob Frenkel thinks that the arbitration claim filed by ADIA, reportedly the world's largest sovereign wealth fund with assets worth as much as $700 billion, may simply be intended to force Citigroup in to a rethink on the price it is due to receive for its shares.
Bloomberg notes that for some sovereign wealth funds investing in Citigroup has been rewarding.
The Kuwait Investment Authority made a $1.1 billion profit earlier this month when selling its share in the U.S. bank and in September the Government of Singapore Investment Corp. sold part of its stake in Citigroup, making a profit of $1.6 billion.
Furthermore Prince Alwaleed bin Talal, a member of the royal family of Saudi Arabia and nephew of the Saudi king Abdullah bin Abdul Aziz, has been a shareholder in Citigroup since the early 1990s and intends to retain his shares.
Reference is also being made by Bloomberg to the billions of dollars in potential tax payments from Citigroup that the U.S. government has agreed it will forgo as a part of the deal in which the bank will repay the funds it received from TARP.
More about Citigroup, Abu dhabi, Shares
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