Citigroup Inc.’s (C) consumer-lending business, OneMain Financial, is set to go public as the company is in the process of filing an initial public offering ('IPO') by the end of September. The company will also take into consideration offers from interested buyers for a possible sale of the unit, which is worth at least $4 billion. The news was first published by Bloomberg.
In recent months, Citigroup has been in talks with several prospective buyers including Evansville, Indiana-based Springleaf Holdings, LLC (LEAF) for a proposed sale. However, the discussions failed to materialize.
Why This Exit Plan?
The latest revelation follows Citigroup CEO Michael Corbat’s announcement of the possible sale of this unit at an investor conference in May. Corbat revealed then that the company initiated the process and is weighing its options comprising selling the unit to a private equity firm, divesting it through public listing or a combination of both by the end of 2014 or early 2015.
OneMain Financial, which is part of the former CitiFinancial, is the biggest operating unit of Citi Holdings with around 1,200 branches, and focuses primarily on subprime loans. As Citigroup was hit hard by the subprime mortgage crisis, the planning to sell this unit is basically a precautionary measure to deal with any further crisis. The company has been taking several restructuring initiatives to make it as much problem-asset free as possible. On the other hand, the banking behemoth intends to focus more on core operations.
Corbat, in the conference, stated that the subprime business no longer is a strategic fit for the altered business track of Citigroup. He also mentioned that Citigroup previously explored the option to vend OneMain Financial, but did not get the right bid. As the unit garners decent earnings, the company might get an attractive price at present.
Bottom Line
Citi Holdings booked profit (excluding the impact of mortgage settlement) for the first time in second-quarter 2014 since its formation. Also, for the rest of 2014, Citi Holdings is expected to remain profitable.
Citigroup has already been shedding distressed assets from its Citi Holdings unit to boost earnings. Further, we believe the exit from OneMain Financial will provide some ease amid several internal setbacks. Also, the streamlining initiatives should bolster the company’s capital position, reduce expenses and drive operational efficiencies.
Citigroup currently holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the finance sector include First Community Bancshares, Inc. (FCBC) and Arlington Asset Investment Corp. (AI). Both the stocks carry a Zacks Rank #1 (Strong Buy).
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