Citigroup Inks Deals To Dispose Of Retail Units In Greece and Spain

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Citigroup (NYSE:C) finalized separate deals to sell off its retail banking operations in Greece and Spain over the last two weeks. The geographically diversified banking group will sell its retail banking and credit card unit in Greece to the European nation’s fourth largest lender, Alpha Bank. [1] In Spain, Citigroup’s retail operations found a buyer in Banco Popular. [2] The deals involve almost 600,000 retail customers in the two countries, with more than $4 billion in deposits. Other details about the deals have not been disclosed.

Greece and Spain were among the worst affected members of the European Union in the wake of the economic downturn, and Citigroup earmarked its retail units in the two countries for sale in late 2012 after moving them to its Citi Holdings division (see How Citigroup’s Reorganization Can Lift Its Share Value). The sale agreements are an important milestone for Citigroup on its path to getting rid of all non-core and loss-making units from its balance sheet.

We have a $53 price estimate for Citigroup’s stock, which is roughly 10% ahead of the current market price.

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Citigroup’s Citi Holdings division, often termed the “bad bank,” was created in 2009 to house all the poor-performing and non-core assets that the group sought to dispose of over time. Since then, the bank has made significant progress managing this division, as it cut down total assets from roughly $900 billion at the peak of the economic crisis (more than 40% of Citigroup’s total asset size) to $114 billion by the end of Q1 2014 (around 6% of total assets). The bank’s retail banking operations in Spain and Greece were among the prominent units that were still awaiting their sale as a part of Citi Holdings.

Citigroup’s presence in Greece can be traced to 1964, with the bank slowly expanding from retail banking operations to wealth management, credit cards and corporate banking over the last 50 years. [3] The banking group will offload its 21-branch network in the country with 730 employees to Alpha Bank. [4] The deal also includes Citi’s Diners Club of Greece credit card unit, and will see $1.4 billion in deposits and $540 million in loans changing hands by the end of next quarter. [1] Citigroup will continue to offer corporate banking services in Greece.

In comparison, Citigroup’s retail operations in Spain are more recent (established in 1983 as Citibank España), but are larger than those in Greece, with a network of 45 branches employing roughly 950 people. [5] These operations will be transferred to Banco Popular along with the card unit in Spain by the end of Q3 2014. The transaction involves $2.8 billion in deposits and more than 1.2 million customers.

While the operations in Spain account for a little more than $2 billion in assets held as a part of Citi Holdings, operations in Greece account for less than $1 billion in assets. Taken together, these two deals will help Citigroup reduce the assets housed under Citi Holdings by $3 billion once they are completed, allowing the bank to shrink these assets to under $100 billion by the end of Q3 2014. The chart below shows the average size of assets for Citi Holdings over the years along with our forecast.

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Notes:
  1. Citi to Sell Greek Consumer-Banking Business, The Wall Street Journal, Jun 11 2014 [] []
  2. Banco Popular to Buy Citigroup’s Retail Business in Spain, The Wall Street Journal, Jun 23 2014 []
  3. Citigroup – Greece, Citigroup Website []
  4. Greece’s Alpha Bank in talks to buy Citi’s local retail ops-paper, Reuters, Jun 11 2014 []
  5. Citigroup to Sell Spanish Consumer Bank to Banco Popular, Bloomberg, Jun 23 2014 []