[R]10:00AM New York – U.S. stocks rallied at the opening on investment in Citigroup.[/R]

U.S. stocks opened higher after a week of volatile trading and sharp loss in yesterday’s trading. The Citigroup 4.9% stake sell to Abu Dhabi Investment Authority sparked a rally in the banking and brokerage stocks.

Dow Jones jumped 102 to 12,849, Nasdaq increased 29 to 2,570, and S&P 500 added 11 to 1,418.

European markets at mid-day trading fell across the region led by a sharp loss in Norway of 1.9%. UK and Germany fell 1.2%, Spain, Italy, and France declined 0.7%. Switzerland bucked the trend and gained 0.5%.

Barclays said that it expects fiscal 2007 earnings to meet the consensus estimates of analysts despite widespread losses in the credit market.

Resource stocks in the morning trading in Europe were weak. Vedanta Resources fell 3% and Antofagasta declined 2% after gold sold-off from the earlier peak.

Banks in the region closed higher on the news that Abu Dhabi will invest $7.5 billion in a convertible security issued by Citigroup that will yield 11% annually for the next three years. The news sent the Royal Bank of Scotland higher by 1.3% and Deutsche Bank by 1.4%.

Asian Markets fell across the board but managed to rebound and trim most of the losses. Taiwan led the region with a decline of 1.8% followed by losses in Hong Kong of 1.5%, in Singapore of 1.3%, in Thailand of 1.2%, and in Indonesia of 0.8%. Japan after declining 2.2% closed up 0.6% and South Korea added 0.25%.

Hong Kong lost as much as 3% and recovered to close with a loss of 1.5%. Banks led the decliners in the local trading on the news that HSBC will move most of the sub-prime exposed structured investment vehicle on to its balance sheet. Investors worried that the implication of this move may deteriorate its balance sheet and the bank may have to seek more capital to maintain its capital ratio requirements.

Bank of China dropped 5% after sovereign fund of Singapore, Temasek, confirmed that it has sold stocks in the bank worth $575 million. HSBC lost 2% and Bank of East Asia declined 1.6%.

Korean shipbuilders rallied as oil price in the region remain firmed and dollar traded near the recent lows again the euro and yen. Financial regulators in South Korea said that they may launch corruption inquiry into Samsung Group of companies. On the news Samsung Electronic fell 4% and Samsung Securities declined 3%.


[R]7:00AM New York – Citigroup seeks funding from the Abu Dhabi at a steep interest rate just two weeks after raising $4 billion at 180 basis points more than Treasury yield.[/R]

Citigroup in a statement said that it has agreed to sell equity linked units to Abu Dhabi Investment Authority and raise $7.5 billion. The largest U.S. bank by market capitalization has gone through a turmoil linked to housing market correction and leveraged loans issued to a leverage buyout boom.

The current investment from ADIA will pay 11% interest rate and will allow it to purchase Citigroup 236 million stocks between March 15, 2010 and Sept 15, 2011 at a price between $31.81 and $37.24 a share.

The emergency funding sought by the bank comes only less than two weeks after the bank raised $4 billion through a ten year bond offering at a rate of 6.125%. The investment from ADIA, though welcome by the bank comes at a steep price and may dilute the shareholders.

ADIA will have no management role and will not have say in the board composition. ADIA investment will follow a similar investment made by Prince Alwaleed bin Talal, a nephew of Saudi King Abdullah in 1991 when the bank suffered heavy losses in Latin America.

Citigroup stock in the pre-market trading rose as much as 6% on the news. However, the larger question remains on the health of the banking system and ongoing correction in the housing market. If the housing market deteriorates further it is almost certain that banks and brokerage houses in the U.S. and Europe will suffer more losses. In the last six months financial services organizations have declared losses totaling $55 billion. Estimates of additional losses for the fourth quarter are expected between $20 and $25 billion.

After declaring a string of recent losses related to sub-prime lending, the Citigroup tier-1 capital adequacy ratio has fallen to 7.3%, below the international standard of 7.5% for the well capitalized banks, but still above 6% required the banking regulators in the U.S. The latest blow to its capital comes after rating agencies downgraded several hundred securities issues only three years ago in the mortgage securities market.