Citigroup and Merrill Lynch turned to foreign investors for an unprecedented bail-out on Tuesday, saying they would raise a total of $21.1bn in fresh capital – mainly from outside the US – to shore up balance sheets devastated by the subprime mortgage crisis. Citi also unnerved investors by warning of further losses from consumer loans as it revealed a 40% dividend cut, a $9.83bn Q4 loss, $18bn in subprime-related credit writedowns and remaining exposure of $37bn to subprime mortgages. Citi is raising $14.5bn and Merrill $6.6bn, largely from private investors and governments in the Middle East and Asia, in the biggest-ever single transfer of capital to US banks from abroad. The latest rescue packages did little to calm investors who pushed shares in Citi down 7.3%  and Merrill down 5.3%. Other banks stocks fell on investor worries about the $5.4bn rise in Citi’s Q4 credit costs, including $4.1bn in its US consumer business. Citi said it would raise another $12.5bn through the sale of convertible preferred securities, and cut its dividend from 54 cents to 32 cents a share and its staff by 4,200 jobs. FT Alphaville looks at whether the moves signal desperation or a calm pursuit of “investors of first choice”.

This entry was posted by Gwen Robinson on Wednesday, January 16th, 2008 at 5:51 and is filed under Capital markets, M&A. Tagged with citi, merrill lynch. Edit this entry.