Thursday, March 5, 2015

Citi Streamlines

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Citigroup (C), one of our long-time bank holdings, has recently offloaded sub-prime lender One Main. Citi will sell One Main to Springleaf for $4.25B. Citi expects to book a pre-tax gain of $1.0B on the deal. While One Main is a profitable business for Citi, it's also a risky business for the bank. Citi seems to be stepping back from consumer banking and focusing on corporate and commercial banking. This transaction should free up capital backing One Main - allowing Citi to increase dividends or share repurchase or deploy the capital elsewhere. The bank can also use some of it's $50B in deferred tax assets against the transaction. In a similar move, the bank just today, announced another sale of non-core assets. Citi sold it's 9.9% stake in Akbank ( Turkish retail bank ) for $1.15B. The bank will continue to operate in Turkey through it's security clearing and settlement transaction business.
Citi continues to move in the right direction and remains undervalued at <10X next year's earnings and 0.8X book value. We think Citi is good value <$50.

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