Citigroup in rift over share deal with Abu Dhabi

Citigroup says the Abu Dhabi Investment Authority (ADIA) has filed a claim against it seeking to stop a 2007 deal to buy $7.5bn (£4.6bn) worth of stock.

If the deal is not blocked, ADIA is asking for damages of more than $4bn. ADIA, one of the largest sovereign wealth funds in the world, agreed the $7.5bn investment into Citigroup at the height of the banking crisis.

This was to be converted into shares at a price of $31.83-$37.24 a share between March 2010 and September 2011.

However, Citigroup's share price was at $3.56 by the close of trade on Tuesday - about a 10th of the value at which Abu Dhabi agreed to pay in 2007 - and ADIA no longer wants to go ahead with the plan.

Citigroup says Abu Dhabi is alleging “fraudulent misrepresentation”, a claim the bank says is “entirely without merit and intends to defend against them vigorously”.

Citigroup's shareholder base has been heavily diluted by the banking meltdown. The US government gave it $45bn from its Troubled Asset Relief Programme (Tarp), $25bn of which was converted into a 34% stake in the bank.

Earlier this week, Citigroup said it would issue even more shares in order to pay back the remaining $20bn and cut loose from government support.

The move by ADIA appears to be the first court case resulting from investments which were made in western banks by a number of sovereign wealth funds during the economic crisis.

However, the Kuwait Investment Authority, which also invested in Citigroup, made a profit on its investment when it sold out at the beginning of December.