Will Chinese government block China bank's investment in Citigroup?

By Anastasia Tomazhenkova: Citigroup Inc.'s plan to raise capital by selling a stake worth 2 billion dollars to a Chinese bank may be stopped. Opposition from the Chinese government may prejudice the success of the plan.

Photo: Will Chinese government block China bank's investment in Citigroup?

Will Chinese government block China bank's investment in Citigroup?

The cash-strapped Citigroup, hurt by the mortgage crisis that boiled up last year, has been seeking foreign investors, including China Development Bank, to boost its balance sheet in the face of mounting write-offs.

Opposition from the Chinese government seems to have surfaced over the weekend, citing an unnamed person familiar with the situation. It is not clear whether the deal has been abandoned.

Director of China Development Bank's news department Yang Hua claimed she was not aware of any plans for China Development Bank to invest in Citigroup or any government opposition to any such investment.

The U.S. financial group is hoping to announce a capital injection from investors when it releases its fourth-quarter earnings Tuesday.

The cash-strapped Citigroup has already gotten 7.5 billion dollars from the Abu Dhabi Investment Authority. On Nov. 26, the ADIA bought a 4.9 percent stake in Citi, becoming its largest shareholder.

The possible failure of the plans of China Development Bank to invest in Citigroup comes after a series of Chinese institutions have put money into struggling Wall Street firms. Most recently, China Investment Corp., the country's sovereign wealth fund, agreed to invest 5 billion dollars in Morgan Stanley.

China Development Bank, which was established in 1994 and is now preparing to become a commercial lender, got a 20 billion dollars injection Dec. 31 from China Investment Corp.

Citigroup Inc., operating as Citi, is a major American financial services company based in New York City, formed from the merger of Citicorp and Travelers Group on April 7, 1998. It is the largest company in the world with total assets of 2.4 trillion dollars (as of Sept 2007). The company employs 332,000 staff around the world, and holds over 200 million customer accounts in more than 100 countries.