Setting record straight on Citi investment

Camb76 SG

There are lots of "financial experts" who comment about this or that investment without really knowing the real details. So let's set the record straight. If you cannot understand what is written, then I'm afraid I can't explain it any simpler.

When GIC invested in Citi, it was to buy preferred stock yielding 7% a year. It is more akin to a bond investment than a stock investment, as people invest in preferred stock more for yield than capital gains, unlike common stock investments. To repeat, preferred stock is NOT the same as common stock.

In late February 09, GIC converted the preferred stock holdings in Citi into common stock at an exchange price of US$3.25 a share. This deal was cut when the US government injected capital into Citi. The Citi stock price that GIC invested in is US$3.25.

As of last night closing, Citi common stock was trading at US$3.81. Hence, there has been a PROFIT of 17% in the Citi investment.

Yes, the UBS investment is still underwater. But at least our national wealth has been increased in the Citi investment, as of today that is. But with the US government now actively supporting Citi, I do think the worst for the company is probably over.

Stevenson101 SG

Think you going to need a helmet

charlize SG

Did they invest any money into citi prior to this investment?

I thought they were averaging down or something to that effect for their investments, that's why people were making so much noise about throwing good money after bad.

Kindly refresh my memory.

Camb76 SG

Look don't take my word for it. Read the Reuters article below for example. Do your own research. Just do it intelligently and fairly, instead of having an axe to grind.

Fri Feb 27, 2009 9:54am EST

By Neil Chatterjee and Saeed Azhar, Reuters

SINGAPORE, Feb 27 (Reuters) - Sovereign wealth fund the Government of Singapore Investment Corp (GIC) said on Friday it will convert its Citigroup preferred shares into common stock in a bid to shore up the troubled U.S. lender.

GIC said it would exchange its convertible preferred notes to common stock at a price of $3.25 a share. Based on Citi's opening share price of $1.67 on Friday, GIC has realised a loss of around half its investment. This also compares with the conversion price of $26.35 under the terms of the original investment.

GIC said its stake in Citi would rise to an estimated 11.1 percent.

"It now means GIC are in the real danger zone. Equity holders are the first to absorb any losses. Or if the Treasury decides to inject more capital, they will get diluted," said an analyst at an investment bank, who declined to be indentified.

GIC is Singapore's largest wealth fund with an estimated $300 billion in assets. Its sister fund Temasek Holdings [TEM.UL], which also invested in global banks and lost over $2 billion on Merrill Lynch, saw its portfolio drop 31 percent in the eight months to November.

Singapore has only said GIC outperformed global equities in 2008. The government tapped its reserves for the first time for a budget stimulus package in January to try to cushion the country from its worst ever recession.

GIC bought in January 2008 about $6.88 billion worth of perpetual, convertible notes in Citi that pay a 7 percent annual dividend. At that time, the notes could be converted into about 4 percent of Citi's expanded capital.

Preferred shares are similar to bonds in that holders received a fixed dividend instead of dividends that may vary depending on the firm's performance. By getting preferred shareholders to convert their holdings into common stock, Citi would be able to reduce its quarterly dividend payment.

"GIC supports the initiative by Citigroup and the U.S. government to strengthen the quality of the bank's capital base," GIC said in a statement.

Shares in Citigroup were trading 32 percent lower at $1.67 in early trade by 1445 GMT on Friday after announcing a deal that would increase the U.S. government's stake in the bank's common stock. [ID:nN27210042].

"Citi needs support right now and that is what the U.S. Treasury and investors are providing," said David Cohen of consultancy Action Economics.

"Hopefully they (GIC) can be rewarded as they are trying to help clean the mess in the global financial system. If you are not willing to take a risk, you can't achieve a return."

charlize SG

Look don't take my word for it. Read the Reuters article below for example. Do your own research. Just do it intelligently and fairly, instead of having an axe to grind.

Fri Feb 27, 2009 9:54am EST

By Neil Chatterjee and Saeed Azhar, Reuters

Could you explain what this means? The report says that GIC has realised a loss half of its investment.

charlize SG

And don't get me wrong, I am no financial expert.

I would also like to find out exactly how much they have gained or lost in their investments in these banks in layman's language.

Camb76 SG

The point is that the GIC investment into Citi common shares is at US$3.25. When that Reuters article was written, the Citi share price had fallen below that level, hence there was a paper lost on the GIC investment. In fact, the Citi share price fell to as low as US$0.97 on March 5. But it has since rallied strongly, and is at US$3.81 as of last night's US stock market close.

charlize SG

But by converting their preferred stock to equity, the report states that they realised a loss half of their investment. Did you factor that into your calculations?

No disrespect, I am just asking and basing it on what I am reading in the report.

Camb76 SG

It’s very simple, the Citi investment is at US$3.25 a share. If the Citi share price is above US$3.25, there is a profit. No need to think any harder than that. It is much simpler now that the investment is entirely in common stocks.

If you think about it objectively, the Citi investment was well structured. The 7% yield on the preferred stock provided good returns last year as bank stocks (including Citi) plunged. And the conversion into common equity in February as the US government went in to support Citi means a lot of upside potential is possible. Of course, there remains the risk that Citi could go bankrupt, and the share price drops to 0. But I think the US government support gives good risk-reward to the Citi investment.

charlize SG

I also understand the part that if the market price is higher than the price you bought, you will make a profit. But by converting the preferred stock to common equity, it states that they realised a loss half of their investment ie. they are already down 50%. This 50% loss has to be taken into account when factoring whether they are making a profit or a loss.

At $1.67, they realised a 50% loss compared to $3.25. Hence The 50% loss is equivalent to a price difference of $1.58. Thus, the stock needs to hit $4.83 ($3.25 + 1.67) for them to recoup the 50% loss ie breakeven. Anything above that price should then be considered profit. Right?

Again, I am no financial expert but basing my simplified calculations based on this report you posted. Not even taking into account things like conversion price and what nots about the convertible notes.

Camb76 SG

I don't mean to be rude, but your post only reveals your lack of understanding of the financial deal. Let me try to explain again in very very simple language. The Reuters article was written on Feb 27. On that day, the Citi common share price was at US$1.67. Given the GIC's Citi investment is at US$3.25, there was a paper lost ON THAT PARTICULAR DAY (namely Feb 27) of 49%. After all, 1.67/3.25 = 0.51. Got it?

Hence the article stated correctly that ON THE DAY of the preferred to common conversion, GIC essentially suffered a paper lost of 49% (1-0.51 = 0.49). Got it?

You can think of this as a cost of the conversion, but NO CASH was paid. It was a purely paper cost. Understand? I repeat, NO CASH was paid for the transaction.

However, since Feb 27, the Citi common share price has rallied. It is now above the US$3.25 level. Hence there is a PROFIT. Got it?

AndrewPKYap SG

Barclays bank... bought at 700, now

281.00

Shin Corp, bought at 49, now

SHIN CORPORATION PUBLIC COMPANY LIMITED (SHIN) Last Trade

Shin Corp's purchase ~ $6,000,000,000.00 compounded at 7% for 5 years, $8,415,310,384.20

Just on compounded interests lost on Shin Corp, $2,415,310,384.20

I repeat, "Just on compounded interests lost on Shin Corp, $2,415,310,384.20"

There are losses on Merrill Lynch, Global Crossings and so on...

Conclusion, the cursed despot and his cronies must not take the people's money left right and center and then gamble with it. If the people want to gamble with their own money, they can do it themselves. They do not need to work so hard and then let the cursed despot and his cronies forcibly take their money to gamble with it!!!

AndrewPKYap SG

I do not want to crap on the cursed despot and his cronies but their running dogs keep on selling farking propaganda!!!!

jojobeach SG

Camb76,

Thank you for the explanations.

But what is the reason for the preffered to common stock conversion ?

According to the latest US banks stress test scores.. Citi still needs 5.5 billion to survive a worsening of economy.

Isn't GIC taking a big risk for the conversion ? I mean GIC is a sovereign wealth fund.. is it prudent for them to do this at all ?

AndrewPKYap SG

From the Reuters article above,

"The government tapped its reserves for the first time for a budget stimulus package in January to try to cushion the country from its worst ever recession."

Cursed despot and his roti prata seller crony... for " government tapped its reserves for the first time for a budget stimulus package" the roti prata seller crony "given in-principle approval to draw on the" but the cursed despot with a gambling addicted father can gamble with the reserves as and when he and his cronies like without approval from the roti prata seller!

Atobe SG

In looking at the small numbers, has everyone lost sight of the original big numbers that cost - ‘Singapore’s GIC faces $5 BILLION loss on Citi investment’ ?

Have we lost sight of the value of our original investment ?

The original investment of US$6.88 Billion had fallen to a present value of US$1.5 Billion - causing the Financial Experts to place our loss at US$5 Billion.

One of the condition of the Obama's Administration offer to bail out Citibank was that there will no other Preferred Shareholders except for the US Government, and all existing Preferred Shareholders will have to convert theirs to Ordinary Shares.

Even before the forced conversion, the Singapore GIC had already seen their 2008 investment plummet from a value of US$6.88 Billion to a value of US$1.5 Billion.

The original price paid per share was reported to be US$26.35.

Should we be elated and be satisfied to see the present Ordinary Share valued at US$3.25 rise to a new market price of US$3.81 ?

‘Singapore’s GIC paper loss for Citibank stands at 89.6%’

The share prices will have to climb much higher then the present market performance before GIC can recover the full US$6.88 Billion that has been poured into Citibank.

As matters stand, the original investment was based on Convertible Notes that was suppose to pay a 7% annual dividend.

With the US Government imposing a conditional aid package to Citibank that will help to guarantee US$306 Billion of troubled mortgages in Citi's portfolio, and with the US Treasury Department injecting US$20 Billion of cash into the firm - what are the other conditions that has been imposed on Citibank besides the main condition of no other Preferred Shareholders in Citibank ?

"Citibank will issue preferred shares worth US$27 Billion to the US Government and pay a dividend of 8% a year.

Citibank will be prohibited from paying common stock dividends of more then US$0.01 a share per quarter for the next three years without the approval of the US Government.

The cost of the bailout will result in Citibank having to pay a dividend of US$2.16 Billion per year to the US Government on the preferred shares. It will also have to pay US$1.25 Billion @ 5% on the US$25 Billion it received through TARP. This means the bank will have to make a profit of more than US$3.41 Billion before the shareholders can take home anything."

‘Citi Bank saved – Will it survive ?’

We will be lucky if we can recoup the original sum invested PLUS the interest sum incurred annually - and forget about opportunity costs.

AndrewPKYap SG

In looking at the small numbers, has everyone lost sight of the original big numbers that cost - ‘Singapore’s GIC faces $5 BILLION loss on Citi investment’ ?

Have we lost sight of the value of our original investment ?

The original investment of US$6.88 Billion had fallen to a present value of US$1.5 Billion - causing the Financial Experts to place our loss at US$5 Billion.

Even before the forced conversion, the Singapore GIC had already seen their 2008 investment plummet from a value of US$6.88 Billion to a value of US$1.5 Billion.

The original price paid per share was reported to be US$26.35.

Should we be elated and be satisfied to see the present Ordinary Share valued at US$3.25 rise to a new market price of US$3.81 ?

‘Singapore’s GIC paper loss for Citibank stands at 89.6%’

The share prices will have to climb much higher then the present market performance before GIC can recover the full US$6.88 Billion that has been poured into Citibank.

As matters stand, the original investment was based on Convertible Notes that was suppose to pay a 7% annual dividend.

"Citibank will issue preferred shares worth US$27 Billion to the US Government and pay a dividend of 8% a year.

Citibank will be prohibited from paying common stock dividends of more then US$0.01 a share per quarter for the next three years without the approval of the US Government.

‘Citi Bank saved – Will it survive ?’

We will be lucky if we can recoup the original sum invested PLUS the interest sum incurred annually - and forget about opportunity costs.

You mean... "Don't" "forget about opportunity costs"

When I said to buy financials, "10 Mar `09, 8:28PM" on 10th Mar 2009, Citibank was trading at :

around one, $1 US dollar!!!

How is it I can buy at $1/- and the cursed despot and his cronies cannot??!!

It just goes to show what farking gambling addicted farkers he and his cronies are.

(Conclusion, the cursed despot and his cronies must not take the people's money left right and center and then gamble with it. If the people want to gamble with their own money, they can do it themselves. They do not need to work so hard and then let the cursed despot and his cronies forcibly take their money to gamble with it!!!)

Atobe SG

You mean... "Don't" "forget about opportunity costs"

When I said to buy financials, "10 Mar `09, 8:28PM" on 10th Mar 2009, Citibank was trading at :

around one, $1 US dollar!!!

How is it I can buy at $1/- and the cursed despot and his cronies cannot??!!

It just goes to show what farking gambling addicted farkers he and his cronies are.

As MM LKY had said – “We went in Too early…” - why do you want to think about the 'opportunity cost' now ?

Then again, they could listen to you now, and lose less if there is another market downturn and give you another opportunity to "plunge the butter knife into their butter".

AndrewPKYap SG

As MM LKY had said – “We went in Too early…” - why do you want to think about the 'opportunity cost' now ?

Then again, they could listen to you now, and lose less if there is another market downturn and give you another opportunity to "plunge the butter knife into their butter".

I don't want them to listen to me or anybody. I just want them to stop taking the people's money and gamble with it. Even if they don't want to give back, just stop taking to feed their cronies and dogs with "legally corrupt" public money. Otherwise I will just keep on asking everyone to curse these public money grabbing, opposition and activist persecuting despotic assholes.

His is already the most cursed family in Singapore with a zombie wife, a son with cancer of the anus, a mongoloid grandson, a daughter in law that committed suicide.....

Atobe SG

His is already the most cursed family in Singapore with a zombie wife, a son with cancer of the anus, a mongoloid grandson, a daughter in law that committed suicide.....

Caution is advised with your preferred attitude and outbursts towards other persons and their families.

What goes around, will come around.

Look after your own and future generations....