x Abu Dhabi, UAETuesday 23 January 2018

Citigroup claim forces Abu Dhabi wealth fund into the limelight

Comment Nobody could ever accuse ADIA, the sovereign wealth fund of Abu Dhabi, of being an attention-seeker, so for it must be pretty sure of its claim that it was misled by Citigroup.

Nobody could ever accuse ADIA, the sovereign wealth fund of Abu Dhabi, of being an attention-seeker. Cautious, low-profile, even dull - yes to all of these. A show-boater - never. So news that ADIA is to take on Citigroup, alleging that it was misled over a plan to buy US$7.5 billion (Dh27.54bn) of shares at a hugely inflated price, should tell us one thing above all: ADIA has done its homework and thinks it has pretty strong grounds for the claim.

History is on ADIA's side. In November 2007, Citi was in the throes of a crisis. There was blood on the boardroom walls and red ink all over the spreadsheets. Citi's real exposure to subprime liabilities was just becoming clear to the market. The shares were getting panned on a daily basis. ADIA rode to the rescue, injecting $7.5bn in the form of a convertible bond. As a mark of confidence in Citi's future, ADIA agreed to convert at roughly the late-2007 share price - $34.

If Citi thought its trouble at that time was a crisis, it was wrong. In the next year, the bank ran out of money, eventually needing $25bn of US government money to keep it going. Washington took a 34 per cent stake as the price of its life-saving investment. Citi's shares lost 90 per cent of their value and now stand at $3.56. The binding arbitration claim that Abu Dhabi has filed will determine whether Citi executives should have known, or been told, more about the true state of the bank's business in 2007.

Fraud allegations make news. ADIA will have to get used to the limelight.