Saudi Prince Alwaleed as a shareholder advocate
By Jon Fernquest[Introduction|Vocabulary|Article]
[Reading Questions|Answers]
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This means the company has to make a profit.
Eventually the company has to give this profit back to shareholders as dividends and capital gains from an increased share price over time (See corporate governance).
Management makes a profit by maximizing revenue and minimizing costs.
Citigroup, "the most valuable bank in the world," had large increases in revenue (10%) and profits rose (4%) last year, but profits rose less than experts expected them to rise so shareholders are unhappy.
Citigroup's increased revenue did not meet expectations because there were even larger percentage increases in costs at the bank.
The bank's largest shareholder Saudi Prince Alwaleed bin Talal has spoken out and essentially threatened the bank: "We have to take draconian, and I say draconian, measures to control the costs."
What are we to make of all of this as a reader? We should probably start asking more questions.
"Why are costs so large?" is the first question that comes to mind.
"Why did experts expect higher profits?" is another.
"Who is this Saudi Prince?" is another obvious question, if you don't already know.
Then there's going to be another group of Americans who will object that Saudi money has too much influence on the American economy and that this influence is dangerous. Michael Moore raised this issue in his film Fahrenheit 9/11½.
Luckily, we have the internet which makes it easy to learn more about a subject. If we work backwards from an article, using keywords in the article to search for background information, using Google expanding our knowledge of a subject is easy.
Wikipedia, the most comprehensive online encyclopedia, is the best place to begin. The Economist's positive yet balanced assessment of the Prince is a good place to start.
For further reading and study check out the free mergers and acquisitions course at Wikiversity's School of Business (Wikipedia University).
Reading Questions
Here are some questions to guide your reading (See answers at end):1. Why are shareholders becoming impatient with Citigroup?
2. How much of Citigroup does the Saudi Prince own?
3. What is the Saudi Prince's ranking among shareholders in Citigroup?
4. What factors were behind the increase in Citigroup's profit's last year?
5. How does the Prince feel about spinning off some of the companies owned by Citigroup?
6. What is the Prince's ranking among the world's wealthiest people?
Article
Rising costs at Citi upset prince
SOUHAIL KARAM
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"The results are positive but they (Citigroup) are not able to get the costs under control... We have to take draconian, and I say draconian, measures to control the costs,'' he told Reuters on Tuesday.
Citigroup spokeswoman Shannon Bell in the United States declined to comment on Alwaleed's remarks. Alwaleed holds a 4.3% stake in Citigroup, which has some 200 million customer accounts in more than 100 countries.
The New York-based bank said on Monday that second-quarter profit rose 4%, with improved consumer banking results, a rise in international credit card volume and the opening of 94 new branches and 176 consumer finance offices.
But the results fell short of some analysts' forecasts.
"They are doing well in consumer credit, credit cards and the new branches ... But we have to match the (quarterly earnings) expectations or beat them. This is the most valuable bank in the world,'' Prince Alwaleed said.
Revenue rose 10% to $22.18 billion, but expenses rose 16% to $12.77 billion.
"I see the 10% rise in revenue and I say, 'Thank you Chuck Prince','' he said in reference to Citigroup's chief executive.
"But when I see the 16% rise in costs, I say, 'No thank you Mr Prince','' he added. "I'm happy with the performance in revenues but the costs have to be cut.''
"Costs should be improved dramatically. There has to be a correlation between the one dollar spent and the one dollar of revenue,'' he said. "The patience of shareholders is getting thin. I'm a shareholder in alliance with Citigroup. I'm patient, but enough is enough.''
Prince Alwaleed said he opposed the idea of breaking up the group, which is the world's largest bank by market value.
"Breaking up the group is a bad idea. Citigroup should never ever be broken up, no way,'' he said.
Prince Alwaleed, who is the nephew of King Abdullah, has been ranked by Forbes as the world's fifth-richest person. His estimated fortune of $23.7 billion makes him the wealthiest Muslim businessman.
He has amassed an enormous fortune from investing in shares, property and recently the Arab music and entertainment industry, all under the giant Kingdom Holding Company.
His activities as an investor came to prominence when he bought a large stake in Citigroup when it was in choppy waters. He later acquired substantial interests in Time Warner, AOL, Apple Computer Inc, Worldcom, Motorola Inc, News Corporation Inc and others.
In January, he teamed up with Colony Capital in a $3.9 billion deal to buy Fairmont Hotels & Resorts Inc.
He also has interests in Four Seasons Hotels & Resorts, George V Hotel and Movenpick Hotels & Resorts. REUTERS
Vocabulary (in article)
dividends - the part of profits that is given back to shareholders each year and not kept within the business to help it grow
capital gains - "the difference in value between what you originally paid for an investment and the price at which it was sold, assuming the investment gained value" (Source)
draconian - very severe, harsh, and extreme
measures - actions you take to solve a problem
comprehensive - includes everything that is relevant and needed
patience wearing thin - not patient anymore
get the costs under control -decrease costs or at least keep them from growing
a stake - a share, part ownership
fell short of - didn't reach the expected level
match the expectations or beat them - people expected them to reach a certain level, but they did not reach or exceed this level
in reference to - regarding, on the subject of
enough is enough - emphasizing "enough"
breaking up the group - selling off the parts of the company so they can operate as separate businesses
came to prominence - became important
in choppy waters - experiencing difficulties (like a boat in rough seas)
spin off - sell off a business that a larger business already owns (See Wikipedia's articles on Mergers and Acquisitions and Spin Offs.)
Answer Key:
1. Why are shareholders becoming impatient with Citigroup?
They can't control the rising costs at the bank.
2. How much of Citigroup does the Saudi Prince own?
He owns 4.3% of the bank.
3. What is the Saudi Prince's ranking among shareholders in Citigroup?
He is the "single largest shareholder."
4. What factors were behind the increase in Citigroup's profit's last year?
The bank is doing well in consumer credit, credit cards and new branches.
5. How does the Prince feel about spinning off some of the companies owned by Citigroup?
He's opposed to it.
6. What is the Prince's ranking among the world's wealthiest people?
He is the fifth wealthiest person in the world.
