) CEO Michael Corbat stated the possible sale of its
consumer-lending business OneMain Financial at an investor
conference on Thursday. Mr Corbat revealed that the company has
initiated the process and is weighing its options comprising
selling it to a private equity firm, divesting it through public
listing or a combination of both by the end of 2014, or early 2015.
Why this Exit Plan?
OneMain Financial - 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 company has been taking
several restructuring initiatives to make it as much problem-asset
free as possible. Also the intention is to focus more on core
Mr Corbat stated that the subprime business no longer is a
strategic fit for the changed 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
currently garners decent earnings, the company might get an
attractive price for it now.
Is It a Right Move?
Amid troubled tides when Citigroup is encountering issues from
various fronts including the ongoing investigations related to the
Mexican fraud and the Federal Reserve's rejection of its 2014
capital plan, the proposed deal upon materialization will give the
company some financial flexibility.
The company has already been shedding distressed assets from its
Citi Holdings unit to boost earnings. Notably, Citi Holdings
reported revenues of $1.5 billion in first-quarter 2014, rising
61.0% from the prior-year quarter. Excluding CVA/DVA, Citi
Holdings' revenues increased 58.0% from the prior-year period to
$1.4 billion, primarily driven by the absence of repurchase reserve
builds for representation and warranty claims in the quarter.
Overall, Citi Holdings' first-quarter results were close to
breakeven and management expects it to reach breakeven point by
As we look forward to Citigroup resubmitting its capital plan to
the Federal Reserve later this year, we believe the company is
working on its internal inefficiencies and setbacks. Further, we
believe these streamlining initiatives will bolster the company's
capital position, reduce expenses and drive operational
Citigroup currently holds a Zacks Rank #3 (Hold). Some
better-ranked stocks in the finance sector include
Capital City Bank Group Inc.
KCG Holdings, Inc.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
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