Saudi Prince To Raise Stake In Citigroup

Alwaleed announced plans to increase his holding to 5.0%, but the bank's stock continues to plummet.

• Citigroup, Inc.

  Thu Nov 20 2008 14:07 EST

  

  $5.32

  $-1.08

  -16.88%

   

Citigroup couldn't get a break Thursday morning, even after Saudi Prince Alwaleed bin Talal gave the bank a vote of confidence.

Before the bell, Alwaleed, Citigroup's largest individual investor, announced his plans to increase his stake to 5.0%. Alwaleed said he believes the shares are "dramatically undervalued" following a nearly 90.0% plunge since late 2006. Citigroup's market value was $34.9 billion on Wednesday--the prince plans to invest at least $349.0 million, based on Wednesday's closing price.

But the royal backing failed to distract investors from the $20.3 billion in losses that the bank has racked up in the past year due to the declining mortgage market and bad securities investments. Citigroup's stock was down 20.2%, or $1.29, to trade at $5.11, in morning trading in New York. Shares of Citigroup (nyse: C - news - people ) have fallen 81.9% this year, and analysts expect the losses to continue through 2009.

Citigroup was also hindered by Chief Executive Vikram Pandit's announcement on Monday that 53,000 jobs would be cut by the end of the first quarter of 2009. (See "Citi Carves Up Staff.") Investors are worried that Pandit's plan to cut expenses, even with Alwaleed's capital backing, won't be enough to revitalize Citigroup.

"Spreads are widening on pretty much everything," said Keith Davis, a bank analyst at Farr, Miller & Washington. "Given that backdrop, how much capital is Citi going to need to shore up its balance sheet? I don't think anyone knows, and so the knee-jerk reaction is to sell first and ask questions later."

Prince Alwaleed, who currently holds less than a 4.0% stake in Citi through his investment company Kingdom Holding, has been buying shares of the New York-based bank, believing they are undervalued and that it's been taking steps to improve its operations amid the ongoing credit crisis. (See "Rebuilding Global Markets.")