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Singapore cuts ownership stake in Citigroup

A Singapore sovereign wealth fund cut its stake in Citigroup Inc. to below 5 percent from 9 percent on Tuesday, reducing its ownership to the level planned before a recent debt exchange.
/ Source: The Associated Press

A Singapore sovereign wealth fund cut its stake in Citigroup Inc. to below 5 percent from 9 percent on Tuesday, reducing its ownership to the level planned before a recent debt exchange.

The Government of Singapore Investment Corp.'s stake rose earlier this month after it exchanged $6.88 billion of preferred shares for common stock as part of a broader debt exchange program Citigroup launched to help improve its capital position.

Investors seemed relieved that the Singaporean fund was done with its selling, and sent Citigroup's shares higher after GIC issued a statement saying it intended to hold on to the rest of its stake. Citigroup's shares ended up 22 cents or 5 percent at $4.65.

"From a trading standpoint, to take a player out of the market, that is going to create some upside potential in the short-term," said Jason O'Donnell, a senior research analyst at Boenning & Scattergood Inc.

The debt exchange that boosted the Singapore fund's stake in Citi also gave the U.S. government a 34 percent ownership stake.

"This was the level GIC had intended when it invested in Citigroup through the convertible security," the fund said in a statement. "A stake below 5 percent reflects GIC's goals and desire to be a portfolio investor."

The debt exchange provides Citi with a better mix of capital to withstand additional loan losses and further weakening in the economy. By turning the debt into common stock, Citi also no longer has to pay out dividends on it, and that will help improve its cash flow.

Citigroup has been among the banks hardest hit by the credit crisis and recession. It has received $45 billion in loans from the U.S. government — a portion of which was converted to the 34 percent ownership stake — and guarantees to protect against losses on more than $300 billion in risky assets.

Citigroup is also reportedly in talks with the U.S. government to reduce its stake in the bank.

The Singapore investment fund realized a $1.6 billion profit from the stock sale, said Ng Kok Song, its chief investment officer.

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AP Business Writer Ieva M. Augstums contributed to this story from Charlotte, North Carolina.