In an effort to cut down its non-core assets,
Citigroup Inc.
(
C
) has decided to sell its Diners Club UK and Republic of Ireland
card, issuing businesses to Affiniture Cards Ltd., a private
investor group. Citi reached an agreement in this context with
Affiniture, which will acquire payment card accounts in these
countries. The financial terms were undisclosed.
As a matter of fact, Citi was badly poised during the financial
crisis and needed a government bailout in order to stay afloat. The
company has been executing a number of strategic reengineering
efforts since. It has designated CitiCorp as its core operating
unit and Citi Holdings as its non-core unit.
Citi now intends to dispose of its non-core operations.
Incidentally, the business that the company is selling is a part of
that non-core unit.
In the past few years, Citi partly sold off this Diners Club
franchisee business. In November 2009, the company announced
selling of its Diners Club North America business to
Bank of Montreal
(
BMO
) which got exclusive rights to issue Diners cards in the U.S. and
Canada. Moreover, in August 2010, Citi sold off the Switzerland and
Germany franchises to a private investment group.
Our Take
The sale of this business is a strategic fit for Citi. In fact,
we believe that the company's long-term strategy to shrink non-core
assets will ultimately reduce its risk profile and free up capital
to be invested in its core businesses. It would also improve its
valuation over time.
Notably, the divestiture of Citi Holdings, its legacy problem
assets portfolio, is on track. At the end of the latest reported
quarter, Citi Holdings assets represented approximately 10% of
total Citigroup assets.
However, we believe that though this strategy to shrink non-core
assets would improve the valuation over time, the shrinking of the
Citi Holdings portfolio would result in revenue challenges,
partially restricting the upside potential of the stock.
Regulatory issues and sluggish economic recovery also remain
causes of concern. But its core business, Citicorp, remains
attractive. International business is gaining momentum and should
support its earnings.
Besides Citigroup, another Wall Street biggie,
Bank of America Corp.
(
BAC
), is also making efforts to shed off a large number of non-core
assets to strengthen its capital position and balance sheet. The
bank which suffered severely during the financial crisis, is
striving to regain its position.
Shares of Citi currently retain the Zacks #3 Rank, which
translates into a short-term Hold rating.
BANK OF AMER CP (BAC): Free Stock Analysis
Report
BANK MONTREAL (BMO): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
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