Citi Announces Pvt Equity Unit Sale – Analyst Blog

As part of its restructuring efforts, Citigroup Inc. (C) has announced that it is divesting its private equity fund of funds, mezzanine and co-investment businesses to StepStone Group LLC and Lexington Partners.

 

Under the terms of the agreement, Lexington is acquiring Citi’s interest in fund of funds and co-investment businesses. StepStone Group will provide the management and advisory services for the unit’s $4 billion fund of funds, feeder and co-investment funds.

The deal, whose financial terms were not disclosed, is expected to close in the fourth quarter of 2010. Following the transaction, assets in Citi Holdings are projected to drop by $1.1 billion.

 

Citi will, however, maintain its management of − and certain proprietary interests in − its employee funds. Besides, this deal does not have any impact on Citi Capital Advisors which is in fact a part of Citicorp, the company’s core business segment.

 

Citi aims to de-leverage Citi Holdings, which consists of Citi’s non-core assets, through a number of steps that include joint ventures, divestitures, and asset run-offs. As a matter of fact, the company has already announced the sale of a number of its businesses within Citi Holdings.

 

In April this year, Citi agreed to sell a hedge fund business to SkyBridge Capital, an alternative-investment firm. The terms of the deal were not disclosed. The hedge fund business had $4.2 billion of assets under management. Additionally, Citi decided to sell its real estate investment unit Citi Property Investors, which had a net asset value of $3.5 billion, to Apollo Management LP.

 

Citi’s restructuring efforts are appreciable. However, the uncertainty regarding the economic recovery and the high level of unemployment are expected to be a drag on its earnings in the upcoming quarters.

 

Besides Citi, Wells Fargo & Company (WFC) has also recently announced a restructuring of its consumer finance unit. The company would close 638 Wells Fargo Financial stores across the U.S., stop originating non-prime portfolio mortgage loans and lay off 3,800 positions as part of this restructuring.

 

Citi is currently rated as Zacks #3 Rank (Hold), implying that there is no clear directional pressure on the shares over the near term. The stock has a long-term Neutral recommendation.