According to a Bloomberg report, Citigroup Inc. (C) is trimming its stake inAkbank T.A.S., a Turkish bank. The company is offering 10.1% of its Akbank stake worth $1.27 billion, up for sale. This amounts to 404 million shares currently owned by its unit, Citigroup Overseas Investment Corp. The company is offering the shares to investors at 5.20 to 5.30 lira each.
Notably, in March this year, Citi had announced its intention of slashing its stake in Akbank from 20% to below 10%. Back in 2007, the company had bought a 20% equity stake in Akbank. Citi will retain its 9.9% stake in the bank for three years.
The move comes as a part of Citi’s capital planning initiatives. Lately, Citi has been offloading its stake in a number of foreign banks. In this context, the company has sold its 2.71% equity stake in Shanghai Pudong Development Bank (“SPDB”) for a pre-tax gain of $542 million.
Moreover, Citi has also offloaded its entire 9.85% stake in Housing Development Finance Corporation Ltd. (“HDFC”) in India for a pre-tax gain of $1.1 billion. Notably, HDFC is a premier housing finance company in India and the promoter of HDFC Bank Limited (HDB), one of the largest banks in India.
Our Take
Banks are required to strengthen their capital levels in order to encounter any financial crisis and satisfy global banking rules. Hence, these stake sales are an integral part of such initiatives, which help boost capital levels.
Moreover, Citi has failed to make meaningful return to its shareholders following the financial crisis and this puts the company in the back foot. The 2012 stress test results were disappointing for Citi. It could not manage to pass the stress test with its proposed plan to return capital to shareholders.
However, going forward, we believe that investments and efficiency savings would help in garnering a solid market share. Improved credit trends are encouraging. Expense outlook is also impressive. In fact, one can consider a company like Citigroup as a value investment, given its global footprint and attractive core business.
We also believe that the strategic capital planning efforts will bear fruit for the company and its shareholders in the future. Yet, a low interest environment along with a tough regulatory scenario remains our major concerns.
Citi currently retains its Zacks #3 Rank, which translates into a short-term Hold rating. Considering its fundamentals, we also have a long term Neutral recommendation on the stock.
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