Citigroup to Shed Consumer Banking Biz - Analyst Blog

In furtherance of its strategy to downsize its international operations, on Monday, Citigroup Inc. C came up with the announcement of the sale of its consumer banking business in Honduras, which awaits regulatory approval. The agreement has been penned with Honduras-based Banco Financiera Comercial Hondurena SA, a subsidiary of Grupo Financiero Ficohsa.

The deal comprises the vending of two units of Citigroup – Banco Citibank de Honduras SA and Cititarjetas de Honduras. The sale includes all credit cards, personal loans and customer deposits of Citigroup in Honduras. However, Citigroup retains its corporate-banking business in the country. Financial terms of the deal were undisclosed.

Citigroup's decision to sell its consumer banking operations in Honduras comes as part of its restructuring initiatives to counter the fall in revenues by focusing on corporate-banking. Aimed at increasing the efficiency of the company's overall business, the initiatives include streamlining operations and optimizing footprints across geographies.

With the completion of this agreement, the position of Banco Ficohsa will be consolidated in Honduras. Moreover, Banco Ficohsa's existing leadership in consumer banking with a diverse portfolio of products and services and specialized platforms will be strengthened.

Similar Moves

Earlier in 2013, Citigroup vended its retail banking operations in Uruguay to Brazil-based Itau Unibanco Holding S.A. ITUB, which took over a portfolio of more than 15,000 customers in Uruguay. Most assets in the deal were attached to Citigroup's credit-card operations.

The Brazilian unit of Citigroup sold Credicard, its non-banking credit card and consumer finance business in Brazil for $1.37 billion (R$2.77 billion) to Itau Unibanco.

Moreover, in Apr 2013, Citigroup entered into a deal with DenizBank, the Turkish unit of Sberbank, Russia's largest lender to vend its consumer banking unit in Turkey.

Background

Earlier in Mar 2013, at an investor conference in Boston, Mike Corbat, the new chief executive officer CEO of Citigroup came up with financial targets for the company, set to be achieved by 2015. Additionally, the CEO announced restructuring initiatives for the markets where Citi operates its business.

Corbat aspires to earn a return of 10% on tangible common equity in 2015, up from 7.9% earned in 2012. Moreover, return on assets is expected in the range of 0.9% – 1.1%, up from 0.62% in 2012, adjusted for certain items. Specifically, at Citicorp, efficiency ratio is aimed to improve in the mid–50% range.

Citigroup operates in numerous markets worldwide. Therefore, Corbat has planned to restructure, reduce or exit some of the operations in 21 markets globally to enhance returns. Though names of such markets were undisclosed, but it was intimated that most of these involve consumer businesses. Notably, in Dec 2012, Citi announced its plans to exit consumer businesses in Uruguay, Paraguay, Turkey, Romania and Pakistan.

Our Viewpoint

With the ambition of achieving financial targets in 2015 by restructuring the business, Corbat aims to provide clients with products globally. Streamlining of operations and efficiency improvements would aid Citi to accomplish its goals within the stipulated time.

Further, in a challenging operating environment with lower returns and stringent capital norms, bolstering revenue has become a challenge. Hence, many Wall Street banks are downsizing their businesses and announcing layoffs.

Citigroup currently carries a Zacks Rank #3 (Hold). Some better-ranked major regional banks include Wells Fargo & Company WFC and KeyCorp. KEY, with a Zacks Rank #2 (Buy).