Citigroup Inc said on Friday it has provided a $500 million (Dh1.8 billion) line of credit to support some fixed-income hedge funds, and as a result moved the funds' $10 billion (Dh36.7 billion) of assets and liabilities onto its balance sheet.
The Falcon funds are managed by the largest US bank's alternative investments unit. Citigroup said that by providing the credit facility on February 20, it became the primary beneficiary of the funds, and thus must consolidate them onto its books.
On February 15, the Wall Street Journal said Falcon Plus Strategies lost 52 per cent in the fourth quarter, its first three months in existence, after making bad bets on mortgage-backed and preferred securities, and trades based on the relative values of municipal bonds and US Treasuries.
Last week, Citigroup said it had suspended withdrawals from another fixed-income hedge fund, CSO Partners, following a 10 percent loss in November. The fund's manager, John Pickett, resigned, a bank spokesman said at the time. It is not unusual for hedge fund managers to suspend withdrawals, to avoid a possible fire sale of assets to pay off departing investors.
Separately, Citigroup said it ended 2007 with $4.02 billion (Dh14.75 billion) of direct exposure to monoline bond insurers such as MBIA Inc and Ambac Financial Group Inc. That's up from the $3.8 billion (Dh13.95 billion) it had estimated on January 15.
Bond insurers are struggling with losses from covering complex debt tied to subprime mortgages, and are trying to raise capital to preserve their "triple-A" credit ratings.
Citigroup, which is based in New York, disclosed the credit facility and bond insurer exposure in its annual report filed with the US Securities and Exchange Commission.
The bank lost a record $9.83 billion (Dh36.1 billion) in the fourth quarter, hurt by write-downs tied to subprime mortgages and an increase in soured loans. Citigroup said further declines in real estate markets could lead to more write-downs for subprime mortgages and leveraged loans, and higher credit losses.
The alternative investments unit was briefly headed last year by Vikram Pandit, who in December replaced Charles Prince as the bank's chief executive. Pandit is reviewing Citigroup's operations, and may sell or streamline businesses to boost growth and investor returns.
Shares of Citigroup closed Friday up 7 cents at $25.12 (Dh92.19) on the New York Stock Exchange. They have fallen 53 per cent in the last year, nearly twice the 27 per cent decline in the 24-member Philadelphia KBW Bank Index. (Reuters)
Citi in $500m hedge fund bailout