KEY POINTS:
Two of Wall St's biggest banks have raised US$21 billion ($27 billion) in a single day, a vital step towards repairing their battered balance sheets and shoring up investor confidence in the face of mounting losses on the US mortgage market.
Citigroup said its former chief executive Sandy Weill was on a list of investors who will pony up US$12.5 billion to help mitigate the US$18.1 billion write-down of mortgage investments.
In another sign of the increasing might of overseas Government investment funds, the Government of Singapore Investment Corporation will put in US$6.9 billion.
A further US$2 billion will be raised in the coming days by offering new debt and other securities to existing Citigroup investors.
Meanwhile, Merrill Lynch also said it was raising additional funds, some US$6.6 billion from a consortium of investors that includes the Korean Government and the Mizuho Corporate Bank of Japan.
The Kuwaiti Investment Authority was a major investor in both fundraisings, putting in more than US$5 billion.
The US state of New Jersey was also putting money into both fundraisings, US$400 million in Citigroup and US$300 million in Merrill Lynch.
It is the second capital raising in as many months for the two banks, after Citigroup tapped the Abu Dhabi Government for US$7.5 billion in November and Merrill Lynch received US$6.2 billion last December from investors including Singapore's Temasek.
All the new money will eventually convert into shares in the two companies. At least in the short term there will be higher dividend or interest rate payments than those being paid to existing shareholders. Citigroup's shareholders have been informed their dividend will be cut by 41 per cent - just two months after the board indicated that the payout was safe.
Citigroup's figures show how its financial situation has deteriorated sharply in recent weeks, not just because of the sliding value of the mortgage-backed derivatives on its books but also because of growing problems with its consumer business, where customers are increasingly in arrears on their car loans, credit card bills and mortgages, and where it was forced to take an additional US$4 billion charge. The company's overall loss in the fourth quarter of 2007 was US$9.8 billion, the worst in its history and higher than Wall St feared.
Vikram Pandit, promoted to chief executive last month, revealed he had already laid off 4200 of the company's 300,000-plus workforce, and cost cuts would continue. There will be another strategy update in April, he said. It is believed that Citigroup will cut between 20,000 and 30,000 jobs this year.
- INDEPENDENT
