Citigroup Inc. said Tuesday that the Abu Dhabi Investment Authority has filed a claim against the bank seeking to either terminate a deal to buy $7.5 billion worth of its stock or receive damages of more than $4 billion.
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds in the world, invested $7.5 billion in Citigroup in November 2007, offering the New York-based bank needed capital to offset big losses from mortgages and other investments.
The fund received equity units that paid a high annual dividend. The units were to be converted into Citigroup common shares at a price of up to $37.24 a share between March 15, 2010, and Sept. 15, 2011, making the fund one of Citi's largest shareholders with a 4.9 percent stake.
At the time, the fund's managing director said the investment reflected its confidence in "Citi's potential to build shareholder value." But the bank proved to be among the hardest hit by the credit crisis and rising loan defaults, and received one of the biggest taxpayer bailout packages _ $45 billion in aid and protection against losses on more than $300 billion in assets.
Since the end of November 2007, Citi shares have tumbled 89 percent from the $33 range to less than $4. At $37.24 per share, the conversion price would amount to more than 10 times Citi's closing stock price Tuesday of $3.56.
The fund's arbitration claim, filed in New York, alleges "fraudulent misrepresentations" in connection with the sale.
In a statement, Citi said it believes the allegations are "entirely without merit and intends to defend against them vigorously."
The company on Monday announced a deal to repay $20 billion in aid. The U.S. government also will sell its 34 percent stake in Citi, which it had swapped for $25 billion in bailout loans.