Citigroup faces $26 million in losses on Australian block trade

Bloomberg News

Citigroup is facing potential losses of as much as 41 million Australian dollars ($26 million) after it was unable to fully sell a block of shares in Goodman Group it had underwritten for China's sovereign wealth fund, according to people familiar with the matter.

The bank launched a sale of 50.4 million Goodman shares for China Investment Corp. on Tuesday evening, underwritten at a floor price of AU$37.55. That's a discount of 1.5% to the stock's previous close of AU$38.12, terms of the deal showed.

When investors balked at the price range, Citigroup relaunched the deal with a wider discount of 3.3%, according to people familiar with the matter, who asked not to be identified as the information isn't public.

That still wasn't sufficient for buyers, and the Wall Street bank ended up selling just 23.4 million shares at AU$36.40, a 4.5% discount to the previous close, the people said. A cross on the exchange matched that. Given Citigroup had underwritten the full deal at AU$37.55, it made a loss of AU$27 million on the trade.

The bank was then left with 27 million shares in Goodman it had bought from CIC, which at Wednesday's close of AU$37.02 are worth just under AU$1 billion, meaning it is sitting on a further paper loss of about AU$14.3 million. The bank could recoup some of that if the stock price recovers, or if it had hedges.

A representative for Citigroup declined to comment. The Australian Financial Review reported on the potential losses earlier.

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Citigroup's move was a risky one so late in the year, when banks typically try to protect revenues made. The bank is ranked No. 1 among managers of Australia and New Zealand equity and rights offerings this year, according to data compiled by Bloomberg, with a market share of almost 14%.

CIC won't incur losses because the block deal was fully underwritten. A unit of the sovereign wealth fund has been a shareholder in Goodman, which owns and develops warehouses, data centers and other commercial real estate, for more than a decade. The 50.4 million shares represented roughly a third of CIC's ownership in the Sydney-based group as of July.