Citigroup (C) to Sell Philippines Consumer Bank to UnionBank
Citigroup's (C) sale of its consumer banking franchise in the Philippines will free up $300 million of allocated tangible common equity and increase tangible common equity by nearly $500 million.
Advancing with its strategy to exit consumer banking operations in selected markets, Citigroup Inc. C has inked an agreement with UnionBank of the Philippines to dispose of Citigroup’s consumer banking franchise in the Philippines.
UnionBank will pay a cash consideration to Citigroup for the net assets of the acquired businesses along with a premium of PHP45.3 billion (around $908 million). The sale is subject to regulatory approvals and is anticipated to be completed in the second half of 2022.
The deal includes Citigroup’s unsecured lending, local credit card, and deposit and investment businesses. It also entails the sale of Citicorp Financial Services and Insurance Brokerage Philippines Inc. (“CFSI”), which offers retail customers insurance and investment products and services. All related Citigroup staff, with around 1,750 consumer bank and supporting employees, are expected to transfer to UnionBank when the transaction closes.
The deal will enable Citigroup to free up approximately $300 million of allocated tangible common equity and increase tangible common equity by nearly $500 million.
Management noted, “This transaction represents a positive outcome for our clients, our colleagues and our firm. We are delivering on our renewed strategy, focusing resources in areas where our global network positions us to deliver optimal growth and returns. Citigroup will continue to serve institutional clients in the Philippines and across Asia Pacific as we have for over a century. We are very pleased with today’s announcement, and we will use the capital generated to invest in our strategic priorities.”
In April, Citigroup announced a major strategic action, whereby, the global consumer banking business will exit 13 markets across Asia and EMEA, including Australia, Bahrain, China, India, Indonesia and Korea. The company anticipates the release of roughly $7 billion (in aggregate) of allocated tangible common equity over time from such market exits.
The freed-up capital will help the company pursue investments in wealth management operations in Singapore, Hong Kong, the UAE and London to stoke growth. Such efforts will likely help augment Citigroup’s profitability and efficiency over the long term.
Making progress on this strategy, in third-quarter 2021, the company announced the sale of its Australia consumer business. The sale is expected to close in the first half of 2022. Citigroup incurred a pretax loss on sale of $680 million in third-quarter 2021, primarily reflecting the impacts of currency translation adjustment loss. Management expects the sale to release $800 million of allocated tangible common equity over time.
In October, the bank announced plans of winding down South Korea’s consumer banking business.In this connection, the company expects to incur cash charges of $1.2-$1.5 billion. These charges, pertaining to voluntary termination benefits for employees and other related expenses, will be recognized in the fourth quarter of 2021 through 2022. The sale will release another $2 billion of allocated tangible common equity over time.
Hence, with the sale of the Philippines business, the company has remaining 10 markets to exit. Since Citigroup was sub-scaled in these markets with unattractive returns, the move is a strategic fit and will help the company reallocate capital to other strategic avenues. Such efforts will help the company navigate the lackluster environment in the banking space.
Over the past year, shares of Citigroup have declined 2% against 31.8% growth recorded by the industry.
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Currently, Citigroup carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Inorganic Moves by Other Companies
Recently, a number of companies have been making efforts to shift focus from consumer banking to battle the low interest rate scenario and compete with fintechs.
FirstCash Holdings, Inc. FCFS completed the previously announced acquisition of American First Finance, a technology-driven, virtual lease-to-own and retail finance provider for underserved, non-prime customers. The cash-and-stock transaction, valued at $916 million (based on FCFS’s closing stock price on Dec 3, 2021), was announced this October.
FirstCash has a proven performance history in retail-based operations, primarily for cash-and-credit constrained consumers. Via the acquisition, FCFS will become a pioneer in the complementary and burgeoning point-of-sale and buy-now-pay-later payment space.
WSFS Financial Corporation WSFS received regulatory approval from the board of governors of the Federal Reserve System for the acquisition of Bryn Mawr Bank Corporation BMTC. Bryn Mawr and WSFS Financial will continue their operations separately until systems and brand conversion in late first-quarter 2022.
Leveraging on Bryn Mawr’s wealth management operations, the merger will enable WSFS Financial to expand its wealth management business. The combined entity will have $20 billion of assets, $12.6 billion worth of net loans, $16.2 billion of total deposits, and $43 billion in Wealth Management business based on the Dec 31, 2020 data.
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