Citigroup (NYSE:C) recently placed 404 million shares of Turkey’s Akbank for nearly $1.15 billion.  The transaction essentially cut Citigroup’s stake in the Turkish bank from 20% to 9.9%. Citigroup announced its decision to cut its stake in Akbank this March – around the same time when it completely sold-off its holding in the Shanghai Pudong Development Bank (see Citigroup Sheds Stake in Pudong Bank For $369 Million Profit). The bank continues to shore up its balance sheet after an embarrassing failure at the Fed’s stress tests earlier this year.
We maintain a $36 price estimate for Citigroup’s stock, which is about 30% above its current market price – the result of a loss in investor confidence due to the deteriorating debt situation in Europe.
The Sale And The Rationale
Citigroup acquired a 20% stake in Akbank in 2007, but the Turkish bank has not fared too well since then. This is what likely led to Citigroup’s decision to cut down on its stake at a notable loss. The bank had acquired the 20% stake for $3.1 billion then and sold a 10.1% stake last week for about $1.15 billion. This values the stake at around $2.28 billion now – a loss of nearly a quarter of its value.
Citigroup reportedly wanted to get rid of the Akbank stake completely, but is contractually bound to retain the 9.9% stake for the next 3 years at least. The sale will reflect in Citigroup’s income statement for the quarter as a pre-tax loss of $243 million. But more importantly, the sale raises the bank’s Tier 1 capital by nearly $900 million.Notes:
- Citigroup Sells $1.15 Billion Stake In Turkey’s Akbank, Bloomberg, May 24 2012 [↩]