In a case of buy low, sell high, Kuwait's sovereign wealth fund just unloaded its $4.1 billion stake in Citigroup (C). In doing so, the fund scored a $1 billion profit -- and a 37% rate of return on its investment -- according to the Kuwait Investment Authority (KIA).
The fund invested in Citigroup in January 2008, before the financial industry came to the brink of collapse last year, but well after the impact of the mortgage crisis had been identified. The fund also invested $2 billion in Merrill Lynch, which was acquired by Bank of America (BAC) in September 2008.
The KIA's investment in Citigroup came as part of a larger $14 billion capital raising initiative by the bank. It followed a $7.5 billion infusion by the Abu Dhabi Investment Authority in November 2007. The Abu Dhabi fund's stake is paying an annual income of 11%, and they convert to common shares starting in March and running through to September 2011 -- with a conversion price of at least $31.83. Citi closed at $17.40 on Friday. Over this period, Citi will pay close to $3 billion in interest.
Citigroup is now under pressure to repay its TARP money, particularly since Bank of America raised close to $20 billion and last week announced plans to make good with the government -- for the full $45 billion tab.
The Week in Preview: Beige Book, Smithfield Foods, Talbots, Men's Wearhouse
Krispy Kreme: Time to Take a Chance?
Comfort Zone Investing: M&A: Good News ... or Bad?
