(Bloomberg) -- Citigroup Inc. undercut rivals this week to win the biggest block trade in Australia in seven years, only to see the deal unravel and leave the US bank with unsold stock on its books.
The firm outbid other rivals on a block trade in property firm Goodman Group by China Investment Corp. with a discount of between 1.4% to 1.5% below Tuesday’s closing price, according to people familiar with the matter. At least four other banks invited to pitch by CIC to offload the stake had teased a 3.5% to 4% discount, the people said, asking not to be named as they weren’t authorized to speak publicly.
With Citigroup unable to sell the entire block, the bank chalked up an A$27 million ($17 million) loss after putting A$1.9 billion of its own money on the line. The lender was left holding 27 million Goodman shares, more than the 23.4 million it sold in the deal that it had fully underwritten, leaving it exposed to further potential losses.
The tribulations for Citigroup underscore the risks of handling large stock sales in a fiercely competitive part of the Asia Pacific. Global banks such as UBS Group AG and Goldman Sachs Group Inc. battle with strong domestic players like Barrenjoey in an investment banking market that’s handed 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 downs show you how intense the competition is around winning mandates,” said Matthew Haupt, a portfolio manager at Wilson Asset Management in Sydney. Banks frequently rely on “tight discounts to try win mandates for vendor selldowns — this makes for bad outcomes for us, they tend to trade badly, like Goodman,” Haupt said.
Winning the sale mandate vaulted Citigroup from 12th place in the third quarter to first this week, with a market share of almost 14%, according to data compiled by Bloomberg on equity and rights offerings in Australia and New Zealand. That ranking of more than 60 firms has been exclusively led annually by either Goldman Sachs or UBS over the past decade, the data show.
The surprise flop comes at a crucial time of the year for bankers as senior management discuss compensation payments and leaves Citigroup dealmakers with a slim chance of recovering lost revenue before the end of 2024.
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Equity capital markets underwriting in Australia earned banks close to $500 million in the first 11 months of this year, accounting for more than 23% of total investment banking fees, according to the LSEG data. For Citigroup, it has earned $54.4 million in investment banking fees, of which about $15 million came from equity, the data shows.
Goodman shares lost 2.1% on Thursday, erasing earlier gains of as much as 1.1%.
Also this week, other banks handled large block trades with no discounts. The founders of radiology firm Pro Medicus Ltd. sold about A$513 million worth of shares, while Auckland City Council sold its stake in Auckland International Airport Ltd. at the same price the shares had closed at Tuesday.
A spokesperson for Citigroup declined to comment on Thursday.
Prospective underwriters were approached on Tuesday by CIC and given just a handful of hours that morning to assemble their offers, according to two people familiar with the process. Citigroup counts CIC, China’s $1.3 trillion sovereign wealth fund, as a key client, one of the people said. CIC owned 149.9 million Goodman shares before the latest block sale, data compiled by Bloomberg show.
The risk on a deal like this is not giving investors like Haupt at Wilson Asset Management enough incentive to buy into the deal. That meant staying out on the Goodman block this week, the biggest since Shell Plc’s selldown of Woodside Energy Group Ltd. in 2017.
“We need to make money on these deals to take the risk, pricing them so tight doesn’t help us,” Haupt said.
--With assistance from Serena Ng.
(Updates with firm’s market share in sixth paragraph. An earlier version corrected eighth paragraph to remove reference to executive’s involvement in deal.)
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