Abu Dhabi Investment Authority (ADIA), which purchased equity units from Citi in November 2007, has filed an arbitration claim against it in New York. The units obligate ADIA to purchase a total of $7.5 billion of common equity on specified dates in 2010 and 2011.
However, a steep drop in Citi’s share price in late 2008 due to crisis of confidence forced the federal government to bail it out with an additional $20 billion preferred equity investment in addition to the $25 billion stake it had picked up through the Troubled Asset Relief Program.
The latest move from ADIA comes as the New York-based bank plans to repay the $20 billion it received under the TARP and redeem $20 billion of TARP trust preferred securities, after successfully completing $17 billion common stock offering and $3.5 billion tangible equity units offering.
The arbitration claim alleges fraudulent misrepresentations in connection with the sale and seeks rescission of the investment agreement or damages in excess of $4 billion. The arbitration claim is being considered as an attempt by ADIA to limit the losses of an unwise investment. However, Citi believes that the allegations are entirely without merit and intends to defend against them vigorously.
