Citi May Vend Spanish Retail Biz - Analyst Blog

Citigroup Inc. C may vend its retail-banking and credit-card business in Spain to one of the largest banks of the country – Banco Popular Espanol SA. Banco Popular revealed in a regulatory filing that talks are underway with Citigroup for the proposed deal.

Banco Popular will assume Citigroup's 45 retail bank offices and a minimum of 300 employees. However, Citigroup will continue its investment and corporate-banking business in Spain.

At a time when US banks are eyeing opportunities outside domestic boundaries, what prompted Citigroup to consider crawling back? Let's take a look:

Spain's Recovery: A Concern?

Spain was one of the European nations to be battered by the subprime mortgage crisis in 2008 and witnessed a record low Gross Domestic Product GDP of negative 1.60 % in first-quarter 2009.

The financial crisis affected the overall banking sector, forcing the European Union to bail out several banks. Also, a number of banks were merged.

However, over the years local banks are again rebounding with the merged entities becoming major players, making it difficult for foreign banks like Citigroup to sustain their operations in Spain. Notably, Spain's GDP grew 0.2% in fourth-quarter 2013 from the previous quarter.

A Boon For Citigroup?

Amid troubled tides when Citigroup is encountering issues from various sides including the unearthing of the Mexican fraud and the Federal Reserve's rejection to the approval of company's 2014 capital plan, the proposed deal upon materialization will be a boon for the company.

Though there has been no official revelation to date, we believe the deal comes as a part of its strategy announced last year to exit from 21 unprofitable and less exposed markets globally. The company has been already shedding distressed assets from its Citi Holdings unit to boost earnings.

Who Else Doesn't See Gain in Spain

Among other companies that have closed some of their operations in Spain last year Barclays PLC BCS is major. The company closed down around 161 offices and eliminated 890 employees in the country. Further, the company is contemplating to exit its retail banking business in Spain.

Bottom Line

As we look forward to Citigroup resubmitting its capital plan to the Federal Reserve later this year, we believe the company is well positioned to work on its internal inefficiencies and setbacks. Further, we believe these streamlining initiatives will enhance the company's capital position, reduce expenses and drive operational efficiencies.

Citigroup currently holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the major regional banks space include BankUnited, Inc. BKU and Wells Fargo & Company WFC. Both the stocks carry a Zacks Rank #2 (Buy).