Citigroup Abu Dhabi deal signals trouble ahead

[EV_Ares]

NEW YORK, Nov 27 (Reuters) - Citigroup Inc's (C.N: Quote, Profile, Research) decision to raise $7.5 billion in capital is a signal to analysts and investors that the largest U.S. bank is likely to have a rough fourth quarter -- perhaps even worse than it has projected.

Citigroup may not be overpaying for the capital, according to convertible bond experts, but if the bank was ready to post excellent results in coming quarters, it would not likely be paying 11 percent a year for money from Abu Dhabi, investors said.

"That's the negative part of the story. You wonder how bad charge-offs will be in the fourth quarter, or the first quarter, and why they need to raise the capital now," said Peter Kovalski, an analyst covering financial stocks at Alpine Woods Capital Investors, which owns Citigroup shares.

A spokeswoman for Citigroup declined to comment on speculation about the bank's performance in coming quarters.

Citigroup said Monday it is selling up to 4.9 percent of itself for $7.5 billion to the Gulf Arab emirate of Abu Dhabi, giving the largest U.S. bank fresh capital as it wrestles with the subprime mortgage crisis and a search for a new chief executive.

Citigroup is in a tough spot now. Its tier-one capital ratio -- a measure to assess bank soundness -- was 7.3 percent at the end of the third quarter, below the bank's target of 7.5 percent.

The bank recorded about $6.8 billion in write-downs and losses in the third quarter, and said on Nov. 4 that it could write down another $8 billion to $11 billion in repackaged consumer debt in the fourth quarter. Continued...

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