By Mike Spector And Christina Rexrode
Lender Springleaf Holdings Inc. said Tuesday that it has agreed
to buy Citigroup Inc.'s OneMain Financial for about $4.25 billion
in cash, a purchase that will create a U.S. subprime giant.
The combined Springleaf-OneMain lender will have approximately
2.5 million customers and 2,000 branches, making it the biggest
subprime lender in the U.S. Springleaf said it expects to
consolidate about 200 branches starting in mid-2016. The deal,
subject to regulatory approval, is expected close in the third
quarter of the year.
Getting rid of the OneMain unit has long been a goal for
Citigroup. In recent years, Citigroup has also jettisoned
well-known names like the Smith Barney brokerage unit and life
insurer Primerica as the firm tries to remake itself after the
financial crisis. The slimmed-down Citigroup, still the
third-largest U.S. bank by assets, has cut units to make itself
less sprawling and easier to manage.
Citigroup's plans to sell OneMain date to at least 2009. But
potential deals to sell the unit fell through when Citigroup didn't
want to sell for too low a price or when investors grew concerned
about the ability to raise funding for the deal.
OneMain's presence among lower-income borrowers is large. It has
more branches in the U.S. than Citigroup's main bank--about 1,140,
according to a recent filing, compared with Citigroup's roughly 850
U.S. branches. OneMain is also the largest business remaining in
Citi Holdings, where Citigroup stores assets that it wants to
sell.
Citigroup Chief Executive Michael Corbat has called OneMain "a
terrific business," a nod to the resurgence in subprime lending and
OneMain turning profitable after losing money throughout the
financial crisis. But Mr. Corbat has also said that OneMain doesn't
fit "the Citi model," which has veered to focus on wealthier
customers.
The New York bank had also considered spinning off OneMain into
its own public company if it couldn't fetch a desired price from a
buyer. Sellers often prefer a straight sale to an initial public
offering, even with a lower value, since it allows them to shed an
asset immediately as opposed to navigating the stock market to
ensure timely share sales at the right price.
One difference in a sale is that Citigroup would be out of the
business completely with one transaction, compared with an IPO,
which could leave Citigroup as a shareholder in the business for
months or years. Such a sale, compared with an IPO, could also help
Citigroup boost its capital ratios or dividends more quickly.
Citigroup is hoping to get approval from the Federal Reserve
later this month to increase its dividend as part of the central
bank's annual stress tests of big banks' financial health. Last
year, Citigroup was the largest U.S. bank to fail the test, putting
its dividend plans on hold.
Springleaf, majority-owned by private-equity firm Fortress
Investment Group LLC, has been interested in OneMain for years,
dating to at least 2011. Other private-equity firms also looked at
OneMain, but Springleaf quickly became the front-runner.
Citigroup has been sprucing up OneMain for a potential sale,
tightening underwriting standards and getting OneMain to raise
funding by selling securities backed by its own loans.
Springleaf expects the deal to add $470 million to its earnings
in 2017.
Citi, meanwhile, said it will use a portion of the sale proceeds
to retire funding that supports Citi Holdings. The sale and the
funding retirement are expected to add $1 billion to its pre-tax
earnings.
Chelsey Dulaney contributed to this article.
Write to Mike Spector at mike.spector@wsj.com and Christina
Rexrode at christina.rexrode@wsj.com
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