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Saudi prince plans to hike Citi stake, but shares slide

Citigroup’s largest individual investor gave the troubled bank new support, saying he would boost his stake modestly, but failed to revive investor confidence as the bank’s shares tumbled another 10%.  

Saudi Prince Alwaleed bin Talal, who plans to increase his stake to 5% from less than 4%, said the bank’s shares were “dramatically undervalued” following a nearly 90% plunge since late 2006. He also expressed “full and complete support to Citi management,” including embattled CEO Vikram Pandit, who earlier this week announced a plan to cut 52,000 jobs.

But investors were unimpressed. Peter Kenny, managing director at Knight Equity Markets, said that if Alwaleed “is upping his stake to 5% at the current valuation of the company, what does that mean? That he’s spending less than $100 million? That’s not very much. The fact he’s bumping up to 5% actually underscores how pathetic the stock performance has been.”

The cost of insuring Citigroup’s debt also rose. Five-year credit default swaps on Citigroup rose to 395 basis points, meaning it costs $395,000 a year to protect $10 million of debt, according to data from Phoenix Partners Group.

The swaps closed on Wednesday at 357 basis points, or $357,000 a year to protect $10 million of debt, according to Markit. “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 their balance sheet? I don’t think anyone knows, and so the knee-jerk reaction is to sell first and ask questions later.”

In a statement, Alwaleed said he believes the shares are “dramatically undervalued” following a nearly 90% plunge since late 2006. Alwaleed expressed “full and complete support to Citi management,” including embattled chief executive Vikram Pandit. He said the bank is “taking all the necessary steps to position the company to withstand the challenges facing the banking industry and the global economy.” (Reuters)