Citi OneMain Sale Hits a Snag - Analyst Blog

By Zacks Equity Research,

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Citigroup Inc. 's ( C ) effort to sell itsOneMain consumer-lending unit has hit a roadblock. The company was in talks with a number of private equity buyers but a sale agreement could not be reached, according to a Wall Street Journal report.

The turmoil in the credit markets in the midst of the European sovereign debt crisis as well as increasing qualms regarding a global economic slowdown has been cited for the failure to reach an agreement.

Citi was in talks with a bidding group for the sale ofOneMain . The company was negotiating with the private-equity investment firmCenterbridge Capital Partners LLC and Leucadia National Corp. ( LUK">LUK ).

OneMain makes mortgage and other loans to high-risk borrowers. In order to finance the business, such loans need to be packaged and sold to investors by the prospective buyers.  However, in a stressed economic environment the market for suchsecuritizations has dried up.

Such issues are said to be the reason for the failure for reaching an agreement. We believe that this failure to reach an agreement will adversely impact the stock's price in the short term.

Earlier in 2011,Citi completed the rebranding of its entire U.S. full service network of 1,300 stores fromCitiFinancial . The rebranding plan was announced in December 2010.

Citi was in a bad shape during the financial crisis and had to take resort to government bailout to stay afloat. The company has been executing a number of strategic reengineering efforts. It has designatedCitiCorp as its core operating unit andCiti Holdings as its non-core unit.Citi intends to dispose of its non-core operations andOneMain happens to be a part of this unit.

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 ofCiti 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 to be invested in its core businesses.

However, we believe that though this strategy to shrink non-core assets would improve the valuation over time, the shrinking of theCiti Holdings portfolio would result in revenue challenges, partially restricting the upside potential of the stock. 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.

Besides Citigroup, the other Wall Street biggie Bank of America Corp. ( BAC">BAC ) is also trying to remove a large number of non-core assets to strengthen its capital position and balance sheet.

Shares ofCiti currently retain theZacks #4 Rank, which translates into a short-term Sell rating.

BANK OF AMER CP ( BAC ): Free Stock Analysis Report
CITIGROUP INC ( C ): Free Stock Analysis Report
LEUCADIA NATL ( LUK ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: BAC , C , LUK

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