Citigoup has sold its stake in Chinese lender Shanghai Pudong Development Bank , booking a profit of around $349 million as the US lender looks to shore up its balance sheet after failing a US Federal Reserve stress test. Citibank sold 506 million shares, or 2.71 percent, of Pudong Development Bank to institutional investors, the Shanghai-based lender said in a statement to the Shanghai Stock Exchange.
Based on Pudong Bank''s closing share price of 9.28 yuan on Monday, that stake would have been worth around $743 million based on current exchange rates. Citi said it expected total proceeds of $668 million before tax, suggesting it sold the shares at around a 10 percent discount. "Citi''s move is surprising, but reasonable," said Jin Lin, analyst at Orient Securities, adding the US bank was likely focusing on its investment in China Guangfa Bank, in which it has a 20 percent stake.
Citigroup and MetLife were among those which led a list of financial institutions that failed the Federal Reserve''s latest round of stress testing, a shock result for two companies that were widely expected to return billions of dollars in extra capital to shareholders soon.
The Fed said Citigroup was among one of the banks which fared worst under a hypothetical shock, sending its minimum Tier 1 common capital ratio as low as 4.9 percent, below the Fed''s 5 percent threshold. Citi''s result was a substantial setback, as going into the tests some analysts felt it had a better chance of a positive surprise than any other financial institution.
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