Abu Dhabi Investment Authority's Rescue of Citigroup

James Harding, the business editor at the Times (UK), has an interesting comment on the ADIA's rescue of Citigroup:

"But the eagerness of Citigroup to secure a capital infusion from Abu Dhabi says even more about the weakness of the American bank. The details of the deal suggest that Citigroup is in trouble. The Gulf is buying convertible bonds, providing a loan that in the next four years turns into just less than a 5 per cent shareholding. The key fact is that Citigroup has agreed to borrow from ADIA at an interest rate of 11 per cent. This is an extraordinarily high rate for a bank such as Citigroup to have to pay. A company borrowing from the junk-bond market would typically pay 9 per cent. A company issuing convertibles would expect to pay a lower interest rate than on a straight bond. Looked at simply, it appears that Citigroup was so desperate for funds that it did not mind the price. Indeed, the cost of the money it is borrowing is higher than the return it could get from lending it."