As a part of its effort to reorganize its business, Citigroup Inc. (C) has unveiled its plan to restructure its consumer finance division — CitiFinancial. This significant structural change is expected to not only reduce cost but also make the unit attractive for potential acquisitions.
CitiFinancial plans to shut down over 300 of its branches which would in turn eliminate around 500 to 600 positions. Under the plan, CitiFinancial is spliting its US business into two segments, CitiFinancial’s Full Service Branches and CitiFinancial Servicing.
The Full Service Branches will continue to focus on originations and servicing of Personal, Refinance and Home Equity loans while Servicing centers will focus on providing specialized service to customers, including loan modifications or restructurings.
Following the segmentation, CitiFinancial also intends to re-name its business. The new brand name is expected to be announced later this year.
In 2009, Citi restructured its business operations into two distinct segments: CitiCorp, representing the company’s core franchise; and Citi Holdings, which represents assets that are non-core to Citi. The company aims at de-leveraging Citi Holdings through a number of steps that include joint ventures, dispositions and assets runoffs. CitiFinancial is also part of Citi Holdings.
As a matter of fact, Citi has already announced the sale of a number of its businesses within Citi Holdings. The company being interested in a simplified business model wants to allocate its capital to long-term strategic businesses. The unveiled plan is a step towards that goal.
While a better-than-expected first quarter result is impressive and the repayment of the bailout money helps the company escape significant government interventions, particularly related to executives’ pay packages, we believe that the sluggish economic recovery coupled with high unemployment levels still remain an overhang. We have a Neutral recommendation on the shares.
Read the full analyst report on “C”
Zacks Investment Research
