Citigroup (C) and Scotiabank (BNS) Ink Business Deal - Analyst Blog

In furtherance of its strategy to reduce costs through streamlining and enhancing returns to serve its clients better, Wall Street giant – Citigroup Inc. (C) inked a deal with Canada-based The Bank of Nova Scotia (BNS) to sell its consumer and commercial banking operations in Peru. Notably, Scotiabank's Peruvian subsidiary will acquire Citigroup's operations.

Financial terms of the acquisition were not disclosed and the deal awaits regulatory approvals. Notably, the deal will impact Scotiabank's common equity tier 1 capital ratio by less than 10 basis points.

Strategic Benefits of the Deal

Though Citigroup is reducing its consumer banking operations in Peru, the company still considers it as a strategic market for growth in other operations. The bank foresees its clients and employees to benefit from the Scotiabank's existing large market share in Peru and expects further growth. Notably, driven by market growth in Peru, Citigroup will hold back its institutional client businesses including Corporate and Investment Banking, Markets and Securities Services, Treasury and Trade Solutions and Private Banking in Peru.

The deal is a strategic fit for Scotiabank as it will enhance the bank's already established position in Peru and place it among the top major lenders in the South American country. Further, the acquisition will extend existing customer relationships along with serving new customers and strengthening market share in credit cards and personal loans in Peru. The deal fits well with Scotiabank's strategy to expand banking operations in Peru as well as in other Pacific Alliance economies of Mexico, Colombia and Chile.

Citigroup has operations in Peru since 1920, including eight branches serving more than 130,000 retail and commercial banking customers. The completion of the deal will transfer Citibank employees from the retail and commercial banking businesses in Peru to Scotiabank Peru. Notably, Scotia Bank operating in Peru since 1997 currently holds C$15.7 billion in assets and 306 branches.

Conclusion

Amid troubled tides, while Citigroup is encountering issues from various fronts including the ongoing investigations related to the Mexican fraud and the Federal Reserve's rejection of its 2014 Capital Plan, the deal will give the company some financial flexibility.

On the capital front, Citigroup is working to improvise the loopholes of the rejected 2014 Capital Plan and is preparing for the 2015 Capital Plan.

We believe the company is well positioned to resolve its internal inefficiencies and setbacks. Further, we believe these streamlining initiatives will bolster the company's capital position, reduce expenses and drive operational efficiencies.

Citigroup currently carries a Zacks Rank #3 (Hold). Two better-ranked finance stocks include SunTrust Banks, Inc. (STI) and LNB Bancorp Inc. (LNBB), both with a Zacks Rank #2 (Buy).

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