Boring Market

Citigroup has had some severe problems over the past couple months, whether is be CEO Chuck Prince who was forced out (amid news of the heavy losses related to bad bets on mortgage securities and an ailing housing markets), share continuing to sink, and having to post a record $18 billion dollar write down. You know what they say, when one Prince steps out another one steps in.

Saudi Prince Alwaleed bin Talal, Citigroup’s largest individual shareholder, has enough confidence in Citigroup’s future that he is willing to help raise $12.5 billion in order to prove it. So who is this Prince? He is one of many sources trying to inject new capital into the biggest U.S. bank. He also owns the majority stake in his Saudi Investment Firm Kingdom Holdings, which holds minority stakes of major US and International companies. Such companies include Apple Inc., PepsiCo Inc., Procter & Gamble Co., The Walt Disney Company, eBay and Motorola Inc.

 

So why does this all matter? In order to understand the implications of what is happening with Citigroup, you would have to look at the bigger picture. The US economy has been in a weak spot in recent years causing businesses to become inexpensive. Some say it’s a recession that is coming and others don’t, but one thing is sure that international investors are ‘banking’ on the fact that many of the domestic companies are undervalued therefore causing minority stakes of US companies to be bought. Almost all the companies previously spoken about that Kingdom have bought has been in times of distress, and therefore have kept these businesses still afloat.

 

Do domestic companies really need international investors? Yes. It is important to understand that when a company, an economy or countries feel they are financially unstable whether that is in the stock price, or debt another individual (or company) see that as an investment. Often times the investor feels that the future return on investment is much higher then the price they are willing to pay. Investors see a company in distress as a discount. Since our the US economy is seeing rough times lately Wall Streets Executives are less likely to rescue companies, and the weak dollar makes US companies look all the better to foreign investors.

Boring Market owns Citigroup Stock.

Tags: ·Bank·Citigroup·Discount·Economy·Foreign·Investor·Market·Overseas·Recession·US