Citigroups hope for investment from Chinese bank hit a snag

Citigroup's hopes for investment from Chinese bank hit a snag

By Eric Dash
Published: January 14, 2008

NEW YORK: Citigroup's talks with the China Development Bank to make a multibillion-dollar investment in the company have reached an impasse after the Chinese government spurned a possible deal, according to a person close to the situation.

While Chinese investment groups have bought big stakes in Wall Street firms like Bear Stearns and Morgan Stanley, the scuttled deal suggests there may be limits on how much the Chinese government is willing to invest in the Western banking system. The exact reasons for the breakdown are unclear, and it is possible the two sides may return to the negotiating table.

Citigroup is turning to cash-rich investors, including foreign governments, for a second time as it confronts mounting losses on mortgage-related investments. It hopes to raise about $10 billion, people briefed on the plan said Friday.

The China Development Bank, which is controlled by the Chinese government, had been expected to invest at least $2 billion, these people said. Citigroup is also in talks with the Government of Singapore Investment Corporation and the Kuwait Investment Authority.

Large investors like Prince Walid bin Talal of Saudi Arabia, who helped rescue Citigroup in the early 1990s, and Capital Research and Management, a money management firm that is the bank's biggest shareholder, are being offered the chance to invest as well to help prevent their current stakes from being severely diluted, but it is unclear whether they will choose to do so. Other investors may also be involved.

While the deals may yet fall through, announcements are expected shortly. The talks come as Citigroup is expected to disclose additional huge losses stemming from bad mortgage-related investments. Analysts project the company is likely to announce charges of $12 billion to $18 billion - and possibly more - when it reports earnings on Tuesday.