Citigroup Adds ING’s European Custody Business To Its Own

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Citigroup (NYSE:C) is acquiring ING’s local custody banking business in seven central and eastern European countries in a move that comes as another welcome departure from the globally diversified banking group’s focus on getting rid of business units since the global economic downturn of 2008. [1] The decision by Citigroup is yet another signal that the banking group is nearly done with cleaning up non-core and loss-making business units which were housed under Citi Holding, and that its balance sheet is strong enough for it to explore options to expand its core businesses through acquisitions.

Citigroup is the fourth largest custody bank in the world, ranking behind Bank of New York Mellon (NYSE:BK), JPMorgan Chase (NYSE:JPM) and State Street (NYSE:STT). The deal will add assets worth nearly €110 billion ($143 billion) spread across operations in Bulgaria, the Czech Republic, Hungary, Romania, Russia, Slovakia and Ukraine to Citigroup’s existing $13.5 trillion in assets under custody.

We maintain a price estimate of $50 for Citigroup’s stock, which is at a premium of less than 10% to its current market price.

See our full analysis for Citigroup


It has taken quite some time for Citigroup to recover from the losses it suffered during the 2008 recession with the bank being the last among all financial institutions that received bailout funds from the government to repay the debt. But it appears that the recovery is complete, and the bank is finally thinking of ways to grow its business.

Despite the fact that Citigroup ranks fourth among custody banks worldwide in terms of size of assets under custody (AuC), the custody business forms a rather small part of the financial behemoth’s business model – dwarfed by its retail banking, credit card and investment banking businesses. The business is nonetheless an important part of Citigroup as it allows it to provide a one-stop solution for all financial needs of corporates and institutions around the globe.

This is where the acquisition of ING’s European custody business comes in. The move will boost Citigroup’s presence in central and eastern Europe – a region it currently has little or no presence in on the custody banking front.

Overall, the $143 billion in new assets the deal brings in represents just over 1% of Citigroup’s existing custody assets base and does not really impact the bank’s share value as can be understood by making changes to the chart above. But it sends a strong signal about the bank’s positive outlook for its revamped business model.

The acquisition is expected to be finalized this quarter itself, with the assets changing hands by the first quarter of 2014. The deal will also add 130 employees to Citigroup’s nearly 260,000-strong workforce.

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Notes:
  1. ING to sell custody services in 7 European countries to Citi, ING Press Releases, Apr 26 2013 []
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