As per a Bloomberg report, in furtherance of its strategy to shed international operations, Citigroup Inc. C is eyeing the sale of its Central America retail units to Madrid-based Banco Popular. The deal is expected to be valued at $1.5 billion.
The sale price of the units is anticipated to exceed the units’ book value marginally and the buyer would take over certain liabilities. However, spokesmen from both companies declined to comment.
Regulatory pressure over Citigroup’s global operations and concerns of weak returns forced the bank to take this move. Aimed at increasing the efficiency of the company’s overall business, the initiatives include streamlining operations and optimizing footprints across geographies.
Notably, Banco Popular also agreed to acquire Citigroup’s consumer banking business in Spain in Jun 2014. The sale of Citigroup’s Spanish business includes $3.2 billion in assets under management, GAAP assets of nearly $2 billion along with $2 billion in loans and $2.8 billion in deposits. Further, 1.2 million customer accounts, 45 branches and ATMs as well as roughly 950 employees agreed to be transferred to Banco Popular.
Citigroup operates in numerous markets worldwide. Concurrent with the third-quarter 2014 earnings release in October, in continuation of the streamlining of its international operations, Citigroup announced “strategic actions.” The company stated that it proposes to exit the consumer banking business in 11 markets. The global footprint will now cover 24 markets that represent more than 95% of Global Consumer Banking’s (GCB) current revenues.
The 11 markets include Costa Rica, Czech Republic, Egypt, El Salvador, Guam, Guatemala, Hungary and Japan. Citigroup expects to complete a significant part of its strategic actions by the end of 2015. The move comes in line with the company’s strategy to focus on markets where it has a strong presence and long-term growth prospects.
Therefore, the units at which Citigroup is planning to sell retail operations include Costa Rica, El Salvador, Guatemala, Nicaragua and Panama.
Similar Moves by Other Banks
In 2012, as part of restructuring of its global operations, HSBC Holdings plc HSBC started reducing private banking in Japan and finally closed down all six of its remaining Japanese branches in July.
Further, Societe Generale divested its wealth management unit in Japan to SMBC in Jul 2013. It followed Bank of America Merrill Lynch’s move to permit Mitsubishi UFJ to take over the private banking joint venture completely, which was announced in 2005. Notably, Bank of America Merrill Lynch is a unit of Bank of America Corp. BAC.
Conclusion
Amid troubled tides, while Citigroup is encountering issues from various fronts including the ongoing investigations related to the Mexican fraud, the deal will give the company some financial flexibility.
On the capital front, Citigroup improvised the loopholes of the rejected 2014 Capital Plan and passed the 2015 stress test recently. Moreover, the approval of the 2015 Capital Plan is expected this week.
We believe the company is well positioned to resolve its internal inefficiencies and setbacks. Further, we believe these streamlining initiatives will bolster the company’s capital position, reduce expenses and drive operational efficiencies.
Citigroup currently carries a Zacks Rank #3 (Hold). A better-ranked major regional bank include Northern Trust Corp. NTRS with a Zacks Rank #2 (Buy).
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