A 36-year-old billionaire Saudi prince is investing a staggering $590 million in Citicorp that eventually could give him nearly 15% ownership of the nation's largest banking firm, Citicorp disclosed late Thursday.
Citicorp identified the investor as Prince Alwaleed Bin Talal, a California-educated businessman who made much of his fortune in construction. The deal, which has been cleared by federal regulators, is one of the largest investments in banking history.
The investment gives a much needed boost to beleaguered Citicorp, which has been troubled lately by such problems as an increasing number of bad real estate loans stemming from the downturn in the Northeast's economy.
Citicorp has been searching the world for up to $1.5 billion in equity capital as part of a larger effort to bolster its financial strength and restore sagging investor confidence. It also is seeking to satisfy Federal Reserve Board officials, who have told the bank that its capital--or financial cushion against losses--is inadequate.
The announcement raised speculation over whether the investment stemmed from political pressure put on Saudi Arabian officials to make the deal as a pay-back for the U.S. role in defending the nation in the Persian Gulf War. An adviser on the deal, however, said there is no evidence of that.
"As far as we can tell, the answer is no," said the adviser, who asked not to be named. "This is a man who has had a 10-year relationship with Citicorp. He keeps most of his cash at Citicorp and obviously likes the company."
A Citicorp spokeswoman added that no Saudi government funds are involved. "This is his own personal investment. It is not on behalf of the Saudi government or the Saudi royal family," she said.
In a statement, the prince said the investment "demonstrates my full support for Citicorp and its management."
Alwaleed's investment in the New York-based banking giant came in the form of non-voting preferred stock that, after October, may be converted into 36.9 million common shares, equal to a 9.9% stake in Citicorp. Citicorp also disclosed that the Saudi investor already owns 16 million of its shares, or 4.9%, most of it bought last year. That makes him Citicorp's largest individual shareholder.
The investment adviser said Citicorp approached the prince about the investment. He said that Alwaleed turned down an earlier investment offer and that Citicorp subsequently sweetened the terms. Under the current terms, the prince will receive an annual cumulative dividend of 11%.
Raised in Beirut and Riyadh, Saudi Arabia, Alwaleed--whose full name is Alwaleed Bin Talal Bin Abdulaziz Al Saud--studied business administration at Menlo College in San Mateo County. He has been described in the media as a "self-made billionaire," heading Riyadh-based Kingdom Establishment for Trading & Contracting, a company with interests in construction, finance, real estate and other businesses.
The prince has developed a reputation for lavish spending. A Times travel story in 1989 described how he, his wife, their two children and 17 assistants traveled to a South Carolina vacation spot. To maintain the "natural body clocks" of the group, the prince reportedly had the hotel install $4,000 in lights and a volleyball court so they could play volleyball, swim and eat lunch on local Riyadh time.