Alwaleed to Boost Citi Stake to 5%, Backs Pandit

Saudi Arabian financier and investor Prince Alwaleed bin Talal bin Abdulaziz Al Saud said Thursday he will boost his stake in Citigroup to 5 percent from 4 percent.

For a brief moment, Citi shares traded higher on the move, but later shares reversed and fell another 25 percent.  Investors continue to express their concern about Citi's ability to withstand what is expected to be billions in additional loan losses in 2009.

Prince Alwaleed, who owns more Citi shares than other individual investor, said he believes the stock is "dramatically undervalued" following a nearly 90 percent plunge since late 2006. Citigroup's market value was $34.9 billion on Wednesday, meaning that Alwaleed plans to invest at least $349 million, based on Wednesday's closing price.

In a written statement, he expressed "his full and complete support to Citi management, led by Vikram Pandit, and believes they are taking all necessary steps to position the company to withstand the challenges facing the banking industry and the global economy."

The move comes after series of capital boosts that have increased Citigroup's tier-one capital ration to more than 10 percent.

Alwaleed's percentage stake was reduced in late 2007 and early 2008 as Citigroup raised some $50 billion of capital from sovereign wealth funds and other investors, plus Alwaleed himself, to shore up its balance sheet. It recently raised another $25 billion through the U.S. government's bank bailout package.

Citigroup has raised $50 billion in private capital on top of $25 billion in government assistance, the statement said.

Citigroup shares have lost one-third of their value in the first three days of this week as investors worried that Pandit's plan to cut expenses by 20 percent and eliminate 52,000 jobs won't restore the bank to health.

Citigroup has lost $20.3 billion in the last year and taken tens of billions of dollars of writedowns on mortgage and other toxic debt. Analysts expect it to lose money in the fourth quarter, and some don't expect it to be profitable in 2009.

Pandit suffered a major setback last month when Wells Fargo agreed to buy Wachovia, trumping Citigroup's bid to buy much of the Charlotte, North Carolina-based bank and add its $418.8 billion of deposits.

With Citigroup stock continuing to fall to new lows, some are even discussing the possibility that the company will now need some sort of government invention.

On Thursday, the cost of insuring Citigroup's debt jumped. Five-year credit default swaps rose to 395 basis points, meaning it would cost $395,000 a year to protect $10 million of debt, according to data from Phoenix Partners Group. The swaps closed at 357 basis points on Wednesday, or $357,000 a year to protect $10 million of debt, according to Markit.

"Spreads are widening on pretty much everything," said Keith Davis, a bank analyst at Farr, Miller & Washington.

"Given that backdrop, how much capital is Citi going to need to shore up their balance sheet? I don't think anyone knows, and so the knee-jerk reaction is to sell first and ask questions later."

More from CNBC.com:

• Trader Voices Growing: Break Up Citi
• 101 Blue-Chip Stocks Under $10

-Reuters contributed to this report.

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