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Citigroup's Princely Problem


Prince Alwaleed Bin Talal is bullish on Citi. Does that matter?

Saudi Arabia's most famous investor has spoken up about Citigroup (C) again, and still, no one's really listening.

Prince Alwaleed Bin Talal, who has been called the Arabian Warren Buffett, is the nephew of Saudi Arabian King Abdullah and the head of the Kingdom Holding Company. He's been one of Citigroup's largest individual shareholders since his initial investment in 1991.

It's not been an easy ride for the prince, or for Citigroup's other shareholders. After reaching a high of nearly $58 in 2000, shares plummeted during the credit crisis to a low of $0.97 before rebounding to around $3.60 today.

"The turnaround for Citi is already happening right now. The shares are up right now so the worst is over," Alwaleed told Reuters over the weekend. "In 2010, I'm looking for stabilization and profitability also. I'm expecting 2010 to be profitable for Citi."

Besides the fact that a rise in share price may not be a reliable indicator about the progress of Citi's turnaround, Alwaleed's earnings expectations aren't such a dramatic call: Wall Street analysts expect the bank to earn $0.09 per share in 2010, according to Zack's.

While Alwaleed has been openly critical of Citigroup in the past, he has good reason to share any positive outlook he might have on the stock right now. His company's future is counting on it going up.

Last week, Alwaleed boosted Kingdom Holding's balance sheet by transferring $600 million worth of his own Citi shares onto its balance sheet. Shares of the investment group -- of which Alwaleed is a 95% owner -- have lost about half their value since 2007 and it's had capital losses of 65% as of the end of the third quarter. The transfer of Alwaleed's Citi shares should help secure its borrowing capacity, and it also means that the Citi shares aren't going to be sold anytime soon.

Citigroup shares rose only slight on Alwaleed's comments on Monday. Why? Because Alwaleed's enthusiasm has never been much of a catalyst for the shares.

Let's take a brief trip down memory lane with the Saudi prince and the too-big-to-fail bank:

July 19, 2002

"Citigroup is very cheap, too cheap at current prices," Alwaleed said, upon announcing that he would plow another $500 million into the company. The following week, shares fell from $36 to $29 and change. Although they did return to the upper $40s later that year, Alwaleed never sold.

November 2002

"We won't buy anymore. We have enough," the frustrated investor said, when shares traded for about $36. By the following spring, they reached $52.

July 2005

Alwaleed told the The Independent that he'll never sell if his investments crash because the best deals can be found right afterward. "When there's a panic, I'm always happy."

Always happy? He would eventually test himself on that statement.

November 2005

With the shares trading for about $48, Alwaleed was bullish on Bloomberg TV. He said he expected the shares to rise by more than 50% to $70 a share the next year. "Chuck Prince is trying to put everything in place, and really the expectation for Citigroup is to go back sky high," Alwaleed said of the then-CEO. "He's doing a good job."

Chuck Prince, of course, stepped down from the CEO post exactly two years later. Shares did rise the next year, but only by about 16% before beginning their long descent.

February 2007

"Our confidence in Citigroup is strong," Alwaleed said after Citigroup's full-year earnings report. "The results reflect Citigroup's solid performance due to its strong and diverse banking services making the company more competitive."

By the end of that year, Citi shares would lose nearly half their value.

November 20, 2008

Citigroup shares are "dramatically undervalued," according to Alwaleed, upon announcing another cash injection. Later that day, the shares fell 17.5%.

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