Market Rallies on Citigroup Stock Deal The stock market rallied Tuesday on a sharp fall in oil prices and news that Citigroup is about to get a major cash infusion. The Abu Dhabi Investment Authority bought $7.5 billion of Citigroup stock, giving it a 4.9 percent stake in the U.S. financial services giant.
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Market Rallies on Citigroup Stock Deal

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Market Rallies on Citigroup Stock Deal

Market Rallies on Citigroup Stock Deal

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MELISSA BLOCK, host:

This is ALL THINGS CONSIDERED from NPR News. I'm Melissa Block.

The stock market is on a seesaw again this week. And after a 200-point loss in the Dow yesterday, the mood on Wall Street shifted today. The Dow finished up more than 200 points. The turnaround came after a big drop in oil prices. It also followed news that an Abu Dhabi investment group is buying a big chunk of Citigroup, which has been hit hard by the mortgage crisis.

NPR's Jim Zarroli has been following the story. He joins us from New York.

And Jim, tell us about this deal that involves Citigroup and the Abu Dhabi Investment Authority. What's it about?

JIM ZARROLI: Well, here are the terms. The Abu Dhabi Investment Authorities is going to invest seven and a half billion dollars in Citigroup. In exchange, it is going to be very well paid for its investment. It will essentially get a fixed return of 11 percent for its money, which - that is more than even the average junk bond gets these days. It will become the second largest single investor in Citigroup which, of course, is the country's biggest bank.

BLOCK: And what's in it for Citigroup? Why did it agree?

ZARROLI: Well, Citigroup needs the money. It has suffered big losses in the subprime mortgage crisis, along with, you know, Merrill Lynch, Bear Stearns, Wachovia. Its chief executive - Citigroup's chief executive, Charles Prince, had to resign this month. The company is expected to announce big layoffs any day. This will give it some of the capital it needs. It also - perhaps more importantly, sends a kind of signal to the stock market.

You know, if this authority is willing to put this kind of money into Citigroup, it can't be doing that badly. And in fact, investors seem to respond pretty favorably today. Not only did Citigroup's shares go up, but as often happens, a lot of other stocks went up, too, especially financial stocks.

BLOCK: Mm-hmm. And this investment group, Jim, the Abu Dhabi Investment Authority, what is it? How does it work?

ZARROLI: Well, we don't know a lot about how it operates because it isn't all that transparent. If you go to the Web site for the authority, all you will see is the address and phone number, nothing else. What we do know is it is what's called a sovereign wealth fund, which means it's controlled by the government of Abu Dhabi. There is, of course, a lot of money in the Gulf right now, basically, because oil prices are so high.

These sovereign wealth funds have been - become very big, very powerful. And they have been buying assets all over the world. The Abu Dhabi Investment Authority is considered a particularly shrewd investor. It made headlines in this country in September, when it purchased part of the Carlyle Group, which is the big Washington lobbying firm.

BLOCK: Now, we mentioned that the stock market went up today after this deal was announced and also after oil prices fell. Do you think there's a sign that the stock market has hit a bottom here?

ZARROLI: You know, it's nearly impossible to say we are several months into this subprime mortgage crisis. We still can't say how much money has been lost in total. We have these big financial services companies like Citigroup that come and say they've lost money and then they come back later on and say, you know, we lost even more money than we thought because of mortgage investments.

Until we know the answers, until we know how much has been lost, we aren't going to know how much of the stock market is going to suffer. We keep getting these really volatile days where the Dow Jones Industrial Average has seen swings maybe 200 points. But the overall trend has been down.

The Dow has lost nearly 1,200 points since its high in October. Yesterday, the Standard & Poor's 500 index was down 10 percent, which is what is officially known as a stock market correction.

BLOCK: Okay. NPR's Jim Zarroli in New York.

Jim, thanks a lot.

ZARROLI: You're welcome.

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