Abu Dhabi Buys Chunk of Citigroup
LUKE BURBANK, host:
All righty, well, another day, another story about the fallout from the subprime mortgage crisis.
This one, though, sort of jumped out at us. The government of Abu Dhabi is buying a seven-and-a-half billion dollar stake in Citigroup, that's the largest bank in the U.S. This gives Citigroup a little walking around money as it tries to shore up its bottom line. All right, so the largest U.S. bank sells off part of itself to a super-tiny, super-rich Middle Eastern sheikhdom. Sounds like a perfect time for another round of our patented segment, Make Me Care.
Here to help us out is Mike Santoli, associate editor of Barron's Weekly. Hi, Mike.
Mr. MIKE SANTOLI (Associate Editor, Barron's Weekly): Hello.
BURBANK: Thanks for coming on.
Mr. SANTOLI: Sure thing.
BURBANK: I understand that you're in a family way right now.
(Soundbite of laughter)
Mr. SANTOLI: Yes, sort of a watching the nest at the moment.
BURBANK: All right. Well, good of you like to come on and talk to us about this. I don't know we should even call this Make Me Care as much as Should We Care, because I actually think it's inherently pretty interesting. But is it just - my first question I guess is, you know, is Abu Dhabi sort of - is it a big deal that Abu Dhabi is a Middle Eastern country and that's buying a chunk of Citigroup, much the way that the sort of Dubai Port World thing was a big story? Or is this just something that happens a lot and we just don't hear about it often?
Mr. SANTOLI: I wouldn't say it happens a lot. I also wouldn't put it in exactly the same category as the Dubai Ports deal, simply because, you know, 5 percent of Citigroup is not as strategic, theoretically, as an asset or as security sensitive an asset as, you know, managing the ports of the whole country, which would that Dubai Ports deal would have been. But it matters in a sense that it really just reflects how much money is sloshing around the Middle East, thanks to high oil prices, and how powerful, therefore, these small governments are over there. There's $2.5 trillion in what they call these Sovereign Wealth Funds. These are funds that are run by various governments, and much of that is in the Middle East. Some of it's in China. So we're going to probably be hearing more about these types of deals. I don't think this one, though, is one to get particularly alarmed about.
BURBANK: Let's talk about Abu Dhabi for a moment. This is a really wealthy sheikhdom. There's like, maybe a maximum of 400,000 people or something live in this place, Abu Dhabi.
Mr. SANTOLI: Right.
BURBANK: What does Abu Dhabi get out of buying these big stake in Citigroup?
Mr. SANTOLI: Well, if you - you have very good problem if you're the government of Abu Dhabi, which is you have very few people and an enormous amount of money, you could not possibly spend or put to work all that money in your own country, because it would just kind of make the whole system go nuts. So you have to have these long-term funds, because, look. Oil's not going to last forever. So they're going to put this money to work over a long period of time all over the rest of the world. Don't make no mistake: A lot of it's going to go with the building resorts and skyscrapers, and, you know, buying helicopters and all that.
But a lot of it is going to be invested in countries overseas. That's what has to happen if they can - if they're going to actually, you know, kind of provide for their citizens over a long period of decades. So that's what they kind of get out of it. They also, theoretically, get a nice investment on the cheap, because, you know, Citigroup's in a bad way. It's stock has been pounded because of all the toxic mortgage mass. And I would point out, too, there's precedent for this. There's a Saudi Prince, who, since the early '90s - the last time that then Citicorp was in trouble - bought five percent of that company. He continues to own it. So interestingly, close to 10 percent of Citigroup is now owned by essentially a couple of little groups in the Middle East.
BURBANK: A-ha. Okay. Well, you're already building a compelling case, I would say, Mike. But let's see if you can actually take home the official "Make Me Care" clock. We're going to set it at 60 minutes, please, Jacob. And when you hear the ticking clock, that means you're down to 10 seconds. Mike Santoli of Barron's, please see if you can make us care about Abu Dhabi buying this junk of Citigroup.
Mr. SANTOLI: Okay. Everyone out there is paying $3-plus for gasoline. It's up by about 200 percent in four years. Oils went from $30 to almost $100 a barrel. All that money has gone - most of that money has gone elsewhere. So now that we have a couple of trillion dollars of our money - in theory - having gone that way, it's now coming back to us, and they're purchasing our stuff on the cheap with all these dollars that they've been accumulating. So that sounds scary. I think it's one of these things that you have to remain on alert for. If they buy the wrong stuff, if they buy stuff they don't want us to buy, or if they buy precious resources - there was a Chinese company that wanted to buy a big U.S. oil company last year, and that was blocked.
So, that's one reason to care. Another interesting reason I think to care is the last time we worried about foreigners coming in and buying important stuff in this country in a big way was the '80s with the Japanese. But the Japanese bought trophies. They bought Rockefeller Center. They bought Pebble Beach Golf Course. They bought lots of bright, shiny things that they, it was almost like bragging rights. The Chinese and the Middle Easterns - to a larger degree - are buying true, long-term assets. That's something that probably is going to continue for a long time as well, as I mentioned.
Finally, you should care because if they're going to go buy stuff all over the place, is it better that they come back and put the money stack into this economy, especially when the financial system is in a little bit of distress? Probably so on a short-term basis. It's probably good that a company with hundreds of billions of dollars of loans out there, mortgages, corporate loans of every type is a little bit teetering. It's probably good that there's somebody who can, overnight, give you $7.5 billion that you're sure to market.
BURBANK: Mike, Mike, I think there was some confusion. When I - I said that when the clock's ticking, that means there's 10 seconds left. You might have thought 10 minutes. Even so, even though you were grossly over the time limit, you totally made me care. Anyone who owns any kind of stocks was made to care this week, too, as they surged on this news.
Mike Santoli, associate editor of Barron's Weekly. Thank you so much for coming on and explaining this to us about Abu Dhabi and Citigroup. And Good luck to you and your growing family.
Mr. SANTOLI: Oh, thanks very much.