I have been saying for weeks now that big banks like Citigroup (C), Bank of America (BAC) and Wachovia (WB) were screaming buys at these levels. Insiders are buying like crazy at Wachovia and now Abu Dhabi has invested $7.5 billion in Citi.
"This investment, from one of the world's leading and most sophisticated equity investors, provides further capital to allow Citi to pursue attractive opportunities to grow its business," said Win Bischoff, Citi's Acting Chief Executive Officer. "It builds on a series of actions we have taken over the past several months to strengthen our capital base, which have included sales of certain non-strategic assets, the issuance of trust preferred securities, and the previously announced plan to use common stock to purchase 32% of Nikko Cordial in Japan. In addition, ADIA is a significant participant in alternative investments and emerging markets financial services, two areas in which we have major positions and have been expanding."
For its investment, Abu Dhabi 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. The investment, which took about a week to put together, is expected to close within days. The payment rate reflects market terms based on the conversion premium as well as Citi's current dividend yield.
American's current pessimism about banks is not shared by the outside world. Why? They recognize large international banking operations will not be toppled by the US housing market. Will they be hurt? Sure. Will they recover yes. Those who have the guts to buy in when most are fleeing and ride out the storm will be handsomely rewarded just like every other financial "crisis" from the dawn of man.
If you only listen to one piece of advice during your investment career, make it Berkshire Hathaway's (BRK.A) Warren Buffett's, "buy fear and sell greed".