Citigroup Likely To File For IPO For OneMain Financial Soon
Citigroup (NYSE:C) is expected to take its first step towards divesting OneMain Financial by filing for an initial public offering (IPO) later this month. [1] The consumer lending unit, formerly known as CitiFinancial, is a part of the banking group’s Citi Holdings division and will most likely be spun off within the next six months. [2] Citigroup is pursuing a dual-track process to ensure that the disposal is completed within the targeted timeframe, with plans for the IPO moving ahead along with talks with potential suitors for an outright sale.
The deal is estimated to bring in as much as $4 billion in cash for Citigroup once it is completed. More importantly, the disposal of OneMain Financial will reduce the total assets under Citi Holdings by roughly $9 billion – marking an important step towards the eventual divestment of all of Citigroup’s non-core and non-profitable operations.
We have a $58 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 almost $900 billion at the peak of the economic crisis (more than 40% of Citigroup’s total assets) to $111 billion by the end of Q2 2014 (around 6% of total assets). OneMain Financial is a sizable part of Citi Holdings.
OneMain Financial is one of the largest providers of installment loans in the country, and hands out between $3,000 and $15,000 in personal loans to people with credit ratings which are below average. One of the banking group’s oldest operating units, it came into existence in 1912 as Commercial Credit, and grew through several key acquisitions to become CitiFinancial – the leading community-based lender in North America prior to the economic downturn of 2008. [3] But the recession and the subsequent focus on cutting down costs by exiting non-core operations saw Citigroup renaming the division OneMain Financial in 2011 and moving it under Citi Holdings. The unit was almost sold in late 2011, but difficulty to secure financing for the deal forced Citigroup to delay its plans. [4]
Plans to dispose of the unit were revived earlier this year, when Citigroup saw interest for OneMain from several suitors. [5] Within months, CEO Michael Corbat announced that the divestment will be completed by the end of Q1 2015. [2] Reports of an impending IPO as well as of talks with potential suitors indicate that the bank is exploring all available options to maximize returns. While the unit was up for grabs for around $2 billion in 2011, the considerably improved market conditions coupled with the unit’s much cleaner balance sheet could fetch Citigroup up to $4 billion for OneMain.
While Citigroup does not detail the assets for each of the units under Citi Holdings, OneMain Financial was estimated to have roughly $9 billion in assets at the beginning of the year. [5] If that is accurate, the plan to divest the unit could therefore help Citigroup reduce the assets housed under Citi Holdings by up to $9 billion. The chart below shows the average size of assets for Citi Holdings over the years along with our forecast.
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- Citigroup Said Planning to File IPO for OneMain by End of Month, Bloomberg, Sept 12 2014 [↩]
- Citigroup CEO Says Bank Could Sell or Spin Off OneMain, Wall Street Journal, May 29 2014 [↩] [↩]
- Our History, OneMain Financial Website [↩]
- Citigroup Said to Halt Talks on Sale of Its OneMain Consumer Lending Unit, Bloomberg, Jan 6 2012 [↩]
- Exclusive: Fortress, others eye Citi’s OneMain consumer finance unit, Reuters, Feb 21 2014 [↩] [↩]