(Bloomberg) – Citigroup Inc. undercut rivals this week to win Australia’s biggest block trade in seven years, before the deal fell apart and left the US bank with unsold shares on its books.
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The company outbid other rivals in a block trade of real estate company Goodman Group by China Investment Corp. at a discount of 1.4% to 1.5% below Tuesday’s closing price, according to people familiar with the matter. At least four other banks invited by CIC to redeem the shares had teased a discount of 3.5% to 4%, the people said, asking not to be named because they were not authorized to to speak in public.
Unable to sell the entire block, Citigroup posted a loss of A$27 million after risking A$1.9 billion of its own money. The lender retained 27 million Goodman shares, more than the 23.4 million it sold in the deal it had fully underwritten, leaving it exposed to further potential losses.
The ordeal for Citigroup underlines the risks of dealing with big stock sales in a fiercely competitive part of the Asia-Pacific. Global banks such as UBS Group AG and Goldman Sachs Group Inc. competing with strong domestic players like Barrenjoey in an investment banking market that has paid financial firms more than $2.1 billion in fees in the first 11 months of this year, according to data compiled by the London Stock Exchange group.
“The recent sell-off shows how fierce the competition is to win mandates,” said Matthew Haupt, portfolio manager at Wilson Asset Management in Sydney. Banks often rely on “tight discounts to try to win mandates for vendor sellouts – this creates bad outcomes for us, they tend to act poorly, like Goodman,” Haupt said.
Winning the sales mandate lifted Citigroup from 12th in the third quarter to first this week, according to data compiled by Bloomberg on equity and rights issues in Australia and New Zealand. The data shows that this ranking of more than 60 companies has been managed annually solely by Goldman Sachs or UBS for the past decade.
The surprise flop comes at a crucial time of year for bankers as senior management discusses compensation payments, giving Citigroup dealmakers a slim chance of recouping lost revenue before the end of 2024.
The Goodman deal was signed by a number of executives in various divisions. Among them was Achintya Mangla, the firm’s investment banking finance chief and a key member of Chief Executive Officer Jane Fraser’s team, one of the people said. He recently joined Citigroup after more than 22 years at JPMorgan Chase & Co., where he helped lead global investment banking.
