Citigroup Vends Credicard to Itau - Analyst Blog
May 15 2013 - 8:30AM
Zacks
In furtherance of its strategy of reducing international
operations, on Tuesday, the Brazilian unit of Citigroup
Inc. (C) came up with the announcement of the sale of its
credit card and consumer finance units in Brazil for $1.37 billion
(R$2.77 billion). The agreement has been penned with Brazil-based
Itau Unibanco Holding S.A. (ITUB), which will take over Credicard,
the non-banking credit card and consumer finance business of
Citigroup.
Citigroup’s decision to sell off its consumer operations in Brazil
comes as part of its restructuring initiatives to counter the fall
in revenues. Aimed at increasing the efficiency of the company’s
overall business, the initiatives include streamlining operations
and optimizing footprints across geographies.
With the completion of this agreement, the position of Itau
Unibanco will be consolidated in the card market in Brazil.
Moreover, Itau Unibanco’s existing leadership in the consumer
finance and credit card markets with a diverse portfolio of
products and services and specialized platforms will be
strengthened.
Notably, with the buyout of Credicard, Itau Unibanco’s credit card
base will surge to 37.7 million from 32.8 million as of Apr 2013.
However, Citigroup will continue its institutional and retail
consumer banking businesses in Brazil.
Terms of the Deal
As per the terms of the deal, Itau Unibanco will acquire Banco
Citicard SA and Citifinancial Promotora Ltda along with the
Credicard card brand. Notably, the deal includes the acquisition of
96 Credicard stores and about $3.26 billion in consumer loan
balances as of Dec 31, 2012.
However, the takeover deal excludes Corporate cards, the Citi and
Diners branded portfolios, and the Credicard Platinum portfolio
(except for Exclusive), or Credicard American Airlines cards. These
cards will be transferred to Citi brand and Citigroup will continue
to manage these.
After receiving approval from the regulatory authorities, Citigroup
expects to make an after-tax gain of about $300 million or 10 cents
per share following the closure of the deal. Moreover, Citigroup
will reflect these business activities as discontinued operations
beginning in the second quarter of 2013.
Similar Moves
Earlier in Apr 2013, Citigroup entered into a deal with DenizBank,
the Turkish unit of Sberbank, Russia’s largest lender to vend its
consumer banking unit in Turkey. Price for the transaction was
undisclosed. Moreover, the deal is expected to be completed in
third-quarter 2013.
As per the terms of the agreement, DenizBank will take over 1.2
billion liras ($650 million) worth of assets and 1.5 billion liras
(about $800 million) of deposits of Citigroup’s Turkish unit.
Background
Earlier in Mar 2013, at an investor conference in Boston, Mike
Corbat, the new chief executive officer (CEO) of Citigroup came up
with financial targets for the company, set to be achieved by 2015.
Additionally, the CEO announced restructuring initiatives for the
markets where Citi operates its business.
Corbat aspires to earn a return of 10% on tangible common equity in
2015, up from 7.9% earned in 2012. Moreover, return on assets is
expected in the range of 0.9% – 1.1%, up from 0.62% in 2012,
adjusted for certain items. Specifically, at Citicorp, efficiency
ratio is aimed to improve in the mid–50%.
Citigroup operates in numerous markets worldwide. Therefore, Corbat
has planned to restructure, reduce or exit some of the operations
in 21 markets globally to enhance returns. Though names of such
markets were undisclosed, but it was intimated that most of them
involve consumer businesses. Notably, in Dec 2012, Citi announced
its plans to exit consumer businesses in Uruguay, Paraguay, Turkey,
Romania and Pakistan.
Our Viewpoint
With the ambition of achieving financial targets in 2015 by
restructuring the business, Corbat aims to provide clients with
products globally. Streamlining of operations and efficiency
improvements would aid Citi to accomplish its goals within the
stipulated time.
Further, in a challenging operating environment, lower returns and
stringent capital norms, bolstering revenues has become a
challenge. Hence, many Wall Street banks are downsizing their
businesses and announcing layoffs.
Citigroup currently carries a Zacks Rank #3 (Hold). Some well
performing banks include JPMorgan Chase & Co.
(JPM), Fifth Third Bancorp (FITB) and
State Street Corporation (STT), all of which carry
a Zacks Rank #2 (Buy).
CITIGROUP INC (C): Free Stock Analysis Report
FIFTH THIRD BK (FITB): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis Report
STATE ST CORP (STT): Free Stock Analysis Report
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