Citigroup Inc.’s (C) U.S. consumer finance unit is now OneMain Financial. Last Friday, Citigroup completed the rebranding of its entire U.S. full service network of 1,300 stores from CitiFinancial. The rebranding plan was announced last December.
The rebranding gives the company an identity that better suits its image and activity. Moreover, the company stated that the OneMain name reflects a localized business model and commitment to customers.
Citi was in a bad shape during the financial crisis and had to take resort to government bailout to remain afloat. The company has been executing a number of strategic reengineering efforts. It has designated CitiCorp as its core operating unit and Citi Holdings as its non-core unit.
Citi intends to dispose of its non-core operations and CitiFinancial happens to be a part of this unit. We see the change in name as a preparatory step toward achieving that end.
According to a Wall Street Journal report, Citi is in talks with a bidding group for the sale of OneMain. The company is said to be negotiating with the private-equity investment firm Centerbridge Capital Partners LLC and Leucadia National Corp. (LUK).
Bidders of Citi’s unit also include a group comprising Blackstone Group LP (BX). Issues are said to have aroused regarding the financing of loans in the absence of Citi’s balance sheet help.
Citi has already sold a number of its non-core operations. Another biggie, Wells Fargo & Co. (WFC) has also disposed of its non-bank consumer-finance network as part of its restructuring initiatives.
Citigroup’s long-term strategy to shrink non-core assets and increase its fee-based business mix would also improve its valuation over time. The divestiture of Citi Holdings, its legacy problem assets portfolio, is also on track.
This run-off will ultimately reduce the company’s risk profile and free up capital that it continues to invest in its core businesses. Citi Holdings’ assets declined 33% year over year to $337 billion at the end of first quarter 2011. Its assets accounted for approximately 17% of total Citigroup assets as of the end of the first quarter.
However, we think that solid earnings at the company would remain elusive until its revenues experience a decent growth. Regulatory issues and sluggish economic recovery also remain concerns. Yet, its core business, Citicorp, remains attractive. International business is gaining momentum and should support its earnings.
Shares of Citi currently retain the Zacks #3 Rank, which translates into a short-term Hold rating. The company also has a Neutral recommendation from us.
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