Meredith Whitney, the analyst who received death threats this month after predicting that Citigroup would need to significantly reduce its dividend, yesterday called a new capital-raising deal between the world’s biggest bank and Abu Dhabi “crazy” and said that there was a “100 per cent certainty” that the dividend would still have to be cut.

Under the deal, the government-owned Abu Dhabi Investment Authority will become Citigroup’s largest shareholder after injecting $7.5 billion (£3.6 billion) into the bank, in return for a 4.9 per cent stake and a fixed annual payment of 11 per cent of its investment.

The cash infusion will boost Citigroup’s capital base, which has declined considerably of late, with the bank suffering losses of billions of dollars on investments related to high-risk sub-prime mortgages.

However, the annual payment that the bank is making to Abu Dhabi represents a considerably higher yield than the 7.3 per cent that its shareholders presently receive through their quarterly dividends. It is also almost double the interest that Citigroup bondholders receive.

Ms Whitney, an analyst with CIBC World Markets, told The Times: “This is a great deal for Abu Dhabi and a really bad deal for Citigroup shareholders.” She said that the firm had given away 5 per cent of the company on terms that were better for Abu Dhabi than for Citigroup shareholders. Saying that it was “ a patchwork on a much larger problem”, she added: “There is a 100 per cent certainty that Citigroup will still need to cut its dividend, because it simply doesn’t have the earning power to pay it. With this deal, it is borrowing at 11 per cent to try to maintain the dividends, which is crazy.”

Even with a significant dividend cut, the Abu Dhabi cash infusion would not give Citigroup the cash boost that it needs and the bank would still have to sell assets, Ms Whitney said.

Citigroup declined to comment on future dividends but pointed to a statement on November 4, when it said that it did not plan to reduce them.

Ms Whitney shot to prominence this month when she said that Citigroup would need to raise more than $30 billion to restore its capital cushion. Her comments prompted a near7 per cent fall in the bank’s shares that day and contributed to a $369 billion drop in the value of US stocks as investors panicked about the continuing fallout from America’s housing crisis.

Ms Whitney, Forbes’s second-highest-ranked stock-picker, received several death threats from Citigroup investors after her gloomy forecast.

Since then, Charles Prince has resigned as chairman and chief executive after conceding that the bank may need to take a further $11 billion of sub-prime-related write-offs this quarter. Analysts also expect Citigroup, which took a $6.4 billion charge last quarter, to make an additional $4 billion of sub-prime losses in the first quarter of 2008.

Citigroup’s deal with Abu Dhabi and Ms Whitney’s latest comments come shortly after it emerged that the bank was planning to cut thousands more jobs in what would be its second round of large-scale layoffs this year.

CNBC reported that Citigroup, which is still looking for a replacement for Mr Prince, was considering cutting up to 4,500 jobs in addition to the 17,000 eliminated in April.

However, the final number and distribution of redundancies would need to be decided by the bank’s next chief executive.

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