SWF investors in Citi to face dilemma if US govt ups its stake

Greater US government ownership of Citigroup could bring a dilemma to one of the troubled bank’s major stakeholders, the Government of Singapore Investment Corporation (GIC), according to US financial services consultancy Aite group.

Further government ownership of Citigroup, which seems imminent, would probably direct the bank’s corporate strategy towards the US market and dilute the value of the US$6.88 billion investment made by GIC at the outset of the financial crisis, Denise Valentine, senior analyst with Aite Group, said.

“SWFs investing in Citi have watched their investment go from very bad to much worse,” Valentine said.

“US government ownership of the bank will influence Citi’s strategy in the future.”

In a statement, the consultancy said Citi was likely to execute a strategic “pullback” into its domestic market in the US government increased its stake in the bank.

Valentine said that GIC and other sovereign wealth fund investors in Citi were likely to keep their cumulative 7 per cent convertible bond stakes because “the prospect of stock ownership in a $2 per share company [that is] selling off assets is not good”.

“A conversion of preferred shares to common shares will dilute the SWF’s share.”

Current discussions between Citi and the US regulators could see as much as 40 per cent of the bank owned by the federal government.

The US government has already thrown two lifelines to the troubled financial conglomerate since the financial crisis began.