Americans lose faith in Citi and Merrill

Financial Times
23 Jan 08

Citigroupand Merrill Lynch’s standing among US citizens has plummeted as a result of multi-billion dollar capital injections by sovereign wealth funds, according to new research that highlights simmering public opposition to investments by foreign governments.

Over half of the 1,000 people polled by the market research group Strategy One said they “trusted Citigroup less” after its recent decision to tap Middle Eastern and Asian sovereign funds to ease its financial constraints.

In Merrill’s case, 45 per cent of the respondents said their trust in the bank had fallen since hearing of investments from foreign state funds, according to the research to be published on Tuesday.

The negative public response to cash injections that helped Citigroup, Merrill Lynch and other Wall Street banks to cushion the blow of the credit squeeze underlines growing fears over the role of sovereign wealth funds.

After initially welcoming the capital infusions, politicians such as Senator Hillary Clinton and Chuck Schumer, the influential New York senator, have begun voicing concerns over the role and transparency of foreign state-controlled entities.

Mrs Clinton, a Democratic presidential frontrunner, told a debate in Nevada last week: “I am very concerned about this.

“We’ve got to know more about them, they’ve got to be more transparent.”

The new research – carried out early this month between the two waves of foreign investments in Citigroup and Merrill – also points to an underlying current of protectionism within the US public, which could be exacerbated by the rising threat of a recession.

“The Citigroup figure is staggering,” said Laurence Evans, president of Strategy One, which is owned by the public relations group Edelman.

“There is a xenophobic element to it. The biggest concern is uncertainty: people don’t know how much influence sovereign wealth funds will have.”

Citigroup raised more than $20bn from investors including the Abu Dhabi Investment Authority and the Government of Singapore Investment Corporation.

Merrill Lynch received more than $12bn from investors such as Singapore’s Temasek and the Kuwait Investment Authority. Both banks declined to comment.

However, they have both stressed that the new investors have bought minority stakes and will not get any board seats or management role.

Nevertheless, only 4 per cent of Americans polled by Strategy One said they trusted Citigroup or Merrill more after the investments, with about one in four saying the sovereign funds’ presence had not changed their perception of the two companies.

Mr Evans said Citigroup appeared to be more closely associated with the troubles stemming from the liquidity crunch than Merrill, probably because of its large retail banking presence.

When asked whether they had heard of Citigroup in relation to subprime or mortgage lending difficulties, 41 per cent of respondent said yes, compared with 37 per cent for Merrill.

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