Citigroup Given $7.5bn Lifeline From Gulf State

The struggling American bank Citigroup has secured a $7.5bn (£3.6bn) investment from Abu Dhabi as it scrambles to bolster its finances following huge losses from the global credit crunch.

Citigroup said yesterday that the Arab state's government-controlled investment authority is injecting the money in return for special interest-bearing stock convertible into a 4.9% stake that will make it the bank's biggest shareholder.

The Wall Street firm has been searching for cash to fund a looming $2.7bn dividend payout and improve its capital adequacy - a measure of its ability to absorb losses.

Citigroup's acting chief executive, Sir Win Bischoff, said: "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 businesses." In a memo to the bank's 320,000 employees he warned, however, that staffing levels were under review.

Citigroup's shares slipped 48 cents to $30.22 during early trading in New York. The bank's stock has plunged by 36% since the resignation of former boss Charles Prince at the beginning of the month.

The Wall Street institution has estimated that its losses on sophisticated mortgage-linked credit instruments are between $8bn and $11bn but investors are expecting the figure to rise sharply.

Richard Bove, a banking analyst at stockbroker Punk, Ziegel & Co, said the money from Abu Dhabi would go straight towards further write-offs.

"The whole $7.5bn is going to be eliminated in one swoop in a couple of months," he said, predicting that Citigroup's losses could reach $30bn. "What we're seeing here is a reflection of serious problems at Citigroup in terms of these write-offs."

Bove added, however, that the size of Abu Dhabi's investment was a reflection of Citigroup's capacity to attract funds when necessary: "It shows the ability of the company to pull in investment at any time."

Citigroup is paying a hefty interest rate of 11% on the equity units sold to Abu Dhabi until their conversion into shares, which will be in 2010 and 2011.