Citigroup’s challenges highlight the risks of handling significant stock sales in a highly competitive part of Asia Pacific.
Citigroup offered a lower price than its competitors this week to secure the largest block trade in Australia in seven years. However, the transaction fell apart, leaving the US bank with unsold shares in its books.
The company tried to outbid its rivals on the block trade involving property firm Goodman Group connected to China Investment Corp. with a discount between 1.4% to 1.5% below Tuesday’s closing price, based on the data given by anonymous sources.
The sources also said that the other four banks invited by CIC to propose bids for the stake had suggested a discount of 3.5% to 4%.
Since Citigroup could not sell the entire block, the bank has incurred a loss of A$27 million ($17 million) since it invested its funds of A$1.9 billion. The lender was left holding 27 million shares of Goodman, more than the 23.4 million sold in the fully underwritten agreement, leaving it vulnerable to potential additional losses.
Citigroup’s challenges highlight the risks of handling significant stock sales in a highly competitive part of Asia Pacific.
Based on the data reported by the London Stock Exchange Group, global banks such as UBS Group AG and Goldman Sachs Group Inc. compete with strong domestic players like Barrenjoey in an investment banking market that generated $1.8 billion in fees for financial companies in the first nine months of 2024.
Matthew Haupt, a portfolio manager at Wilson Asset Management in Sydney, stated that the recent sell-off shows the intense competition for winning mandates.
Haupt added that banks often depend on giving discounts to get vendor sell-downs, which leads to unfavorable outcomes.
According to recent data on equity and rights offerings in Australia and New Zealand, securing the sale mandate has taken Citigroup from 12th position in the third quarter to first position this week.
The data shows that Goldman Sachs or UBS has predominantly dominated the ranking of 60 firms annually.
This unexpected flop occurs at a crucial period for bankers as senior management discusses compensation payment, giving Citigroup dealmakers little opportunity to recover lost revenue before the end of 2024.
Achintya Mangla, the firm’s investment banking financing head and key deputy to CEO Jane Fraser, approved the Goodman deal. He joined Citigroup later after spending 22 years at JP Morgan Chase & Co., where he played a key role in global investment banking.
The equity capital market underwriting in Australia earned $392 million for banks in the first nine months of 2024, representing 22% of total investment income, the London Stock Exchange Group reported.
Also, other banks gave large block trades without any discounts this week. The founders of radiology firm Pro Medicus Ltd. sold A$513 million shares, while Auckland City Council sold its shares in Auckland International Airport Ltd. at the same price at which the shares were closed on Tuesday.
Prospective underwriters were approached by CIC and given just a few hours to prepare their offers.
Citigroup considers CIC, China’s $1.3 trillion sovereign wealth fund, an important client. Before the recent block sale, CIC owned 149.9 million Goodman shares.
The challenge with this deal is that investors like Haupt from Wilson Asset Management should not have enough incentive to buy it, which led to their decision to stay out of Goodman block this week, the biggest block sale since Shell Plc’s selldown of Woodside Energy Group Ltd. in 2017.
Haupt stated they need more profit from the transactions to take the risk. Pricing them too tight would not be beneficial for them.has context menu