Presumably the convertible loan notes qualify as tier 2 capital, in which case this deal represents a very cheap way of raising Citi's capital aequacy ratio and addressing the core problem - lack of capital.

Stuart Bander, London, UK

@Dave in Hong Kong: With respect, I think it's you who has misunderstood the term of the deal. The mandatory stock conversion takes place in a quantity that is determined by Citi's share price at the date of conversion. The only way that ADIA will make a gain or loss on conversion is if, at the date of conversion Citi stock is trading either above $37.24 (gain) below $31.83 (loss). Current Citi price is of course around $30, there's no 20% premium as you assert. . ADIA are also protected against dilution for the next 12 months to a significant degree. So ADIA only makes a loss at conversion if Citi share price does worse than 1.5% pa for the next 4 years. Until then, ADIA gets paid 11%. Skimming the terms this deal looks very rich - from ADIA's pov ... And bearing in mind that 6 months ago Citi was trading at $55, not much sign of any expectation from Citi of a bounce back for Citi share price is there? (Above not financial advice etc, etc)

EB, Slough,

100 USD oil is the price we all have to pay for the Oil states to bail out the banking system in the United States.

Its bad loans to make the economy keep on going. Its far from Friedmans Capitalism and Freedom, minimizing the role of government in a free market as a means of creating political and social freedom.

mohsen, malaga, spain

The difference between making the loan and buying shares is twofold:
1) higher immediate yield with (effectively) a warrant attached
2) better security

Should the dividend be cut and should further finance be required (think 1993) ADIA aren't in too bad a position.

Of course they may now rearrange other sections of their portfolio.

DM, Eastbourne,

And the 11% interest is, I presume, tax deductable?

Tony, London, Middlesex

David,

I couldn't agree more : something is rotten in the... state of finance.

Just hope that Dr. Maynard Krebs - the first contributor - is a bit too pessimistic. The markets have already more than enough to cope with.

PS If you have to panic, there is a lot to be said for doing it the first. Maybe Citigroup's management acted with that thruth in mind.

Eddy Verhaeghe, Oostende, Belgium

Does anyone recall the downfall of the Roman Empire? Ilove the United States of America and their entrepreneurial spirit but they, and much of the western world, have been living far beyond their means for far too long.The day of reckoning is just around the corner.

James Reid, Sault Ste. Marie, Ontario, Canada

James Harding has fundamentally misunderstood the terms of this deal. Citi is selling shares at up to a 20% premium above the current share price. The dividend for Citi shareholders is now 7.25%. An 11% interest rate for this convertible loan sounds high but that does not compensate Abu Dhabi for buying shares in 3 years 20% higher than they could buy them for now. In fact, they are up to 8.75% out of pocket.
Citi are no fools and a newspaper like the Times would be well advised to understand the fine print before making fundamentally wrong comments about the bank being in trouble. A frankly embarassingly poor piece of journalism.

Dave, Hong Kong,

Two years ago my dear Citicard offered me a balance transfer with 1.9% APR for the life of the loan. Of course, I snatched the deal and paid off a car loan.
I am still puzzled - how could a bank be profitable with rates like that?
Although, I am sure that the anonymous author of the crazy promotion at Citicard got his bonus , promotion and all the perks.

Hans, Centerville, AL, US

An alien creature on landing here and encountering what has happened would no doubt get back into his rocket and leave earth as quickly as possible, having come to the conclusion that there is no merit in colonising a planet populated by such irrational people. How can all these suposedly clever American bankers have allowed this to happen? (the whole sub prime problem and the knock on effects) More to the point how can the regulators/politicians/central bankers have allowed this to happen? If they were allowed to control nuclear weapons it would be truly terminal for the world.

Diddly Do, Liverpool,

As an American I don't like to have an Arab country as the largest stockholder of Citigroup. Buy what can you expect from a business in which money, and only money is the driver of everything.yet, America will remain as the most powerful country in the globe.

George Wilson, New york, USA

How can a bank "shore up confidence" by paying such an outlandish premium?

David Theron Bushnell, Carral,

The decline of the West can be seen, for one, in the practice of giving ginormous severance pay cheques to criminals who ran the instituions into the ground -- just one more example of ignoring merit and rewarding crime.

eugene, heidelberg, germany

ADIA is conservative soundly managed long term institutional investor, no different from many other firms of similar ilk, perhaps some what bigger than the average pension fund. The investment should me more accurately described as convertible loan notes rather than convertible bonds. The investment is part of long held strategy (established in the early 70's) of investing surplus proceeds from oil income to portfolio assets to provide for a return for future generations.

John Reid, New York, USA

looking out over the future we seem to have a choice of rule by multinationals or by nationalists and I now prefer the former - who prefer customers to corpses.
When military people tell us that global warming is a greater threat then terrorism they do not go into details viz scenarios, because they are trying to spare our feelings, eg avoid panic but sometimes one must resist putting a good face on everything, a lesson Sen Chuck Schumer seems to have forgotten

the genie is out of the box

have a nice day

glenn schaefer, holbrook, USA

"But one argument was resolved yesterday: it has been a better year for the falcon than the bald eagle."

pfffffffffffffffffffffffffffftttttt... WOW!

No one here ( New York ) cares at all what happens to Citi or any other "American" bank. There are no American Banks, just as there are no "English Banks". Capital is easily the most global of things. Let Petrodollars seek whatever return on investment they may. So what? Let CDOs die or not based on their ability to deliver returns or not. So what?
The fact that Citi has to borrow at a high rate of interest says as much about the fear at other big banks as it does about Citi.
Citi gets some extra dollars for the pain ahead, and Abu Dhabi gets a small piece of a large bank that should reward it handsomely in the years ahead.
James knows the big noise is still 4 months away, and honestly he can't wait to write about it. Let the resetting begin.

Dr. Maynard Krebs, New York/NY, USA