The Dow Jones Industrial Average has finished the week down 246.79, at 12,606.30, reflecting Wall Street’s concern that consumer purchases are being dampened by a weakening economy.
Then, after the market closed on Friday, the Wall Street Journal announced Saudi billionaire Prince Alwaleed bin Talal, one of Citibank’s largest shareholder, and the China Development Bank are expected to invest several billion dollars in Citibank, which is facing in excess of $15 billion in fourth-quarter losses from mortgage-related investment vehicles.
The Financial Times also reported Citibank was in the process of raising up to $14 billion in new capital from Chinese, Kuwaiti and other public market investors.
In December, the Abu Dhabi government invested $7.5 billion in Citibank, for a 4.9 percent ownership provision plus a preferred coupon return of 11 percent.
The announcement came at the end of a day on Wall Street that began with the announcement the Bank of America, the largest U.S. retail bank, was acquiring Countrywide, the nation’s largest mortgage bank, in a $4 billion all-stock deal.
In August, Bank of America invested $2 billion in Countrywide for preferred shares convertible to a 16 percent stake in the company.
These transactions underscore the continuing negative impact the real estate crisis has on U.S
. financial institutions, including some of the largest.
Mortgage delinquencies and foreclosures have inflicted billions of dollars damage on the asset portfolios of banks that have held Collateralized Mortgage Obligations, or CMOs, in their asset portfolios.
When CMOs are marked to market, delinquencies and foreclosures mean the assets have to be discounted to reflect their current worth, including billions in losses that cause the securities to have a present value worth considerably less than the initial value the financial institutions placed on the assets when they were first acquired.
In the extreme, banks facing billions in losses on CMOs held in their asset portfolios may be forced to scramble to find new billions in investments, including investments from foreign sources, to make sure the banks have sufficient assets to meet their reserve operating requirements.
Increasingly, U.S. banks are seeking capital from sovereign wealth funds held by Middle Eastern oil producing countries with trillions in petrodollar profits as oil has held to over $90 a barrel, or by China as the U.S.’ negative imbalance of trade continues to grow.
WND reported earlier when the DJIA ended the first week of January under 13,000, at 12,800.18.
Editor’s note: The November issue of WND’s monthly Whistleblower magazine, titled “HOW GLOBALISM IS DESTROYING THE U.S. ECONOMY” – focuses exclusively on the future of the U.S. economy, and answers key questions like: “If inflation is so low, how come food and energy cost so much?” “What is the ‘housing bubble,’ and why did it burst?” “What’s really going on with the stock market?” “Is America heading into a recession?” “Will the dollar collapse in 2008?” and “What will happen to the price of gold?” Previous stories: Stocks suffer worst year’s opening in quarter century Stocks dive as credit crisis deepens
