In line with its strategy to trim international business, Citigroup Inc. C took a step ahead by entering into a negotiation with Brazilian lender Itaú Unibanco Holding S.A. ITUB to offload its retail banking operations in Brazil. The news was first reported by a Brazilian newspaper Valor Economico. Itau Unibanco had outbid Spain-based Banco Santander, S.A. SAN.
In Aug 2016, some sources with the knowledge of the matter stated that the deal value is likely to be around $350-450 million. Nevertheless, there is no official confirmation about the on-going negotiations.
Further, the Brazilian newspaper reported that Banco Santander is in negotiation to buy Citigroup’s Argentinean retail banking unit, while Canada-based Bank of Nova Scotia BNS is likely negotiating on the company’s Colombian unit. The news of the Argentinean unit’s sale was first declared by the Argentinean newspaper La Nacion early this month.
Why the Move?
Since the economic downturn in 2008, Citigroup has been focusing on growth in core businesses through restructuring (shrinking all the loss-making and non-core business units) and streamlining its international business. Additionally, recent regulatory pressure over the company’s global operations and concerns of weak returns contributed to the reasons.
In Oct 2014, Citigroup announced its plan to exit its consumer businesses in 11 markets – including Costa Rica, El Salvador, Guatemala, Nicaragua, Panama and Peru, Japan, Guam – and its consumer finance business in Korea and the Czech Republic, Egypt and Hungary. Effective Jan 2015, these businesses are being reported as part of Citi Holdings.
In Feb 2016, Citigroup had announced plans to reduce its footprint in Brazil, Argentina and Colombia, with an aim to cut costs and improve profitability across its international operations.
Citigroup and other banking players have been under pressure to curb costs and streamline their business owing to increased regulatory oversight and changing economic conditions.
However, with adoption of thoughtful strategies, like the ones implemented by Citigroup over the past few years, the company can combat the headwinds and focus more on boosting its capital position and operational efficiencies.
The deal announcement of Brazilian and Argentinean retail banking unit is expected to be made later this month.
Citigroup’s stock gained around 1% in the last trading session to close at $46.90.
Citigroup Inc. currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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