Yesterday, Citigroup Inc. (C) announced an agreement to sell its Canadian MasterCard business to the Canadian Imperial Bank of Commerce. While the terms of the deal were not disclosed, the sale would reduce assets in Citi Holdings by around C$2 billion ($1.9 billion). This sale is part of Citi’s efforts to reorganize its business.
The deal is expected to close by Oct 31, 2010 and is subject to regulatory approvals. Citi expects the deal to have no material impact on its net income or capital ratios.
Citi has been severely hurt by billions in losses and write-downs of problem loans and toxic assets. The company received $45 billion in bailout funds in 2008 through TARP. Later, in 2009, around $25 billion of that was converted into common stock, resulting in the Treasury receiving 7.7 billion shares or a 27% in Citi stake. The company repaid the remaining $20 billion in December 2009 and the Treasury is now selling its stake in Citi.
In an effort to revive its business, Citi restructured its business operations in 2009 into two distinct segments: CitiCorp, representing the company’s core franchise; and Citi Holdings, representing assets that are non-core to the company. Citi aims at de-leveraging Citi Holdings through a number of steps that include joint ventures, dispositions and assets run-offs.
As a matter of fact, Citi has already announced the sale of a number of its businesses within Citi Holdings. Being interested in a simplified business model, the company wants to allocate its capital to long-term strategic businesses. The latest agreement is a step towards that goal. However, we believe that the sluggish economic recovery coupled with high unemployment levels still remain an overhang.
We have a Neutral recommendation on the shares of Citigroup.
Read the full analyst report on “C”
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