RBC Capital Bullish On Citigroup Following OneMain Sale

In a recent report, analysts at RBC Capital praised Citigroup Inc C for its recently announced sale of the company's OneMain unit to Springleaf Holdings LLC LEAF. Analysts believe the sale is another strong step in simplifying Citigroup's business and focusing on generating consistent returns from its core franchise.

The Sale

Citigroup announced the sale of OneMain this week for $4.25 billion. The deal is expected to close sometime in 3Q15. Analysts project that proceeds from the sale and additional restructuring within Citi Holdings will result in about $1 billion in additional earnings for the company.

Earnings Forecast

RBC forecasts earnings per share for Citi of $5.35 for 2015 and $5.85 for 2016. Analysts have adjusted their models to account for the loss of OneMain revenue. They predict that the deal will ultimately result in lower net interest expense for Citigroup.

Related Link: Bank of America Analyst: Citigroup Likely To Pass Capital Review Test

Citi Holdings

In Q4, Citi Holdings represented about 5 percent of Citigroup's total assets, but the sale of OneMain will reduce that percentage even further. Citi Holdings was first created in 2009 to hold assets that the bank intended to sell or wind down following the fallout from the Financial Crisis. Citigroup has been patient in selling many of its unwanted assets, and the result has been a much better return than a hasty "dumping" in 2009 would have provided for many of the assets.

Outlook

RBC has an Outperform rating on Citigroup and a $62 price target. After its capital plan was rejected by the Federal Reserve last year, Citigroup shareholders are looking to this year's upcoming stress test and capital review results as the next potential catalysts for the stock.