Citigroup stock hammered despite Alwaleed's support

21 November 2008

Despite, Saudi billionaire Prince Alwaleed bin Talal agreeing to increase his stake in Citigroup, troubles seem to be far from over for the No2 US bank by assets. The Prince's vote of confidence in the bank failed to enthuse investors who drove the battered bank's shares to less than $5 for the first time since 1994.

Increasing his stake from 4 per cent to 5 per cent, the bank's largest individual investor, Alwaleed has expressed full support to the bank and its CEO Vikram Pandit. 

The bank's market value, which topped $270 billion at one point during Thursday's trading, dropped to $25 billion at close, lower than the market value of US Bancorp and Bank of New Mellon. Citigroup is four times larger by assets than US Bancorp and New Mellon combined.

Citigroup shares initially rose 6 per cent in premarket trading, following the news of Alwaleed's thumbs up, but failed to hold the gains and were down 2 per cent.
Amid continued erosion in share prices, fears about the US banking giant being able to survive the downturn are growing.

Shares had tumbled 23 per cent on Wednesday. Analysts blame the widening spreads and knee-jerk reactions among investors to sell, on fears of the huge amounts of capital infusion that will be needed to shore up the balance sheet. 

Meanwhile, in a statement, Alwaleed alluded to the dramatic undervaluation of the bank's shares, following a nearly 90 per cent plunge since late 2006. Going by Wednesday's market valuation, which stood at $34.9 billion, Alwaleed planned investment would amount to at least $ 349 million.